SBI, ICICI Come Back with Teaser Home Loans!

SBI, ICICI Back with Teaser Home Loans!

by Ms. Tanushree Banerjee, Equitymaster.com

In 2008, State Bank of India (SBI) was the pioneer of what it is called 'teaser home  loans'. The brainchild of then SBI chairman Mr. OP Bhatt, these dirt-cheap loans allowed SBI to surpass each and every competitor for market share of housing loans.

The problem is the rates do not stay low forever. They entice the borrower, irrespective of his credit worthiness, and when the rates go up, the borrower finds he's unable to service the loans.

Past RBI governors Mr. Subbarao and Mr. Rajan disapproved of these loans, seeing them as a systemic risk.  

Mr. Subbarao even penalised banks offering teaser loans with heavy provisions.

But the India's largest banks, SBI and ICICI, are once again peddling teaser home loans.

For SBI, the problem is not non-performing  (NPA) loans. Its NPA ratio is much better than any other PSU bank.

As far as ICICI's focus on NPAs is concerned, the less said, the better! So flush with cheap funds in their deposit books, both are looking to grab home loan market share.

Needless to say, the reckless loans could turn into NPAs. And at some point, excessive bad loans could put the banks' solvency at risk.

Now, SBI depositors shouldn't lose too much sleep over this. The bank would likely get bailed out should the situation get that bad.

But what about ICICI? What about the other PSU banks who are likely to follow SBI and ICICI in offering teaser loans? Can they rely on a bailout? Should their depositors be worried?

Frankly, yes. Depositors in other PSU banks have every reason to worry. The NPA problem is far from over, and teaser loans could just be the nail in the coffin.

The recent correction in banking stocks shows that investors are testing the safety of their...and finding the banking sector lacking.

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