Banks Challenge RBI's Decision on Teaser Home Loans

Strategic Insights -

RBI's decision to curb teaser home loans, which saw thousands of borrowers fall prey to low interest rates during the initial years, has been challenged by leading banks in the country. The State Bank of India (SBI), the largest lender, has defended its 'special home loan scheme', saying it is not a teaser loan. The RBI has raised the standard provision on such loans, asking banks to set aside more capital and limit lending to 80% of the property value. While most bankers have said they will not review home loan rates during the festival season, some have expressed concerns about the RBI's decision, citing the risk of borrowers' inability to repay once rates move up sharply.

Key Takeaways:

  • SBI has disputed the RBI's definition of a teaser loan, saying its 'special home loan scheme' is not one.
  • RBI has raised the standard provision on teaser loans from 0.40% to 2%, citing the risk of borrowers' inability to repay.
  • Banks have expressed concerns about the RBI's decision, citing the risk of borrowers' inability to repay once rates move up sharply.
  • SBI, Punjab National Bank, Corporation Bank, and ICICI Bank offer loans with special rates compared to their usual rates.
  • RBI's decision to cap the loan to value ratio at 80% will affect ICICI Bank, which has given loans up to 90% of the property value.
  • Oriental Bank of Commerce has said that banks may not immediately raise interest rates on home loans since demand is high during the festival season.
  • RBI has raised the risk weightage for loans above Rs 75 lakh for residential projects.

Statistics:

  • RBI has raised the standard provision on teaser loans from 0.40% to 2% (Source: RBI)
  • RBI has set aside 80% as the limit for loan to value ratio
  • SBI has been the first bank to launch teaser loans (Source: SBI)
  • RBI has raised the risk weightage for loans above Rs 75 lakh for residential projects (Source: RBI)
  • ICICI Bank has given loans up to 90% of the property value (Source: ICICI Bank)

Sources:

  • RBI
  • State Bank of India (SBI)
  • Oriental Bank of Commerce
  • ICICI Bank
  • Corporation Bank
  • Punjab National Bank
  • HDFC Mortgage
  • Times of India