RBI's Move to Regulate Teaser Home Loans

Strategic Insights -

The Reserve Bank of India (RBI) has tightened its norms on teaser home loan schemes, prompting lenders ICICI Bank and HDFC Ltd to discontinue their similar schemes. The move is expected to cool down demand for housing loans, stabilize real estate rates, and prevent high-risk defaults. Teaser home loan schemes, which offered lower interest rates for a limited period, had become popular among home loan seekers, leading to a surge in demand.

Key Takeaways:

  • RBI has tightened norms on teaser home loan schemes to prevent high-risk defaults.
  • ICICI Bank and HDFC Ltd have discontinued their teaser home loan schemes in response to RBI's move.
  • RBI has increased standard asset provisioning by commercial banks for teaser loans from 0.4% to 2%.
  • Teaser loan schemes offered lower interest rates for a limited period, but rates were reset to higher rates later.
  • HDFC's scheme of dual rate home loan, which expired on Tuesday, will not be extended, while ICICI Bank has withdrawn teaser rates on home loans with immediate effect.
  • Corporation Bank had discontinued its teaser rate scheme last month, and state-run SBI is expected to follow suit.
  • RBI's move aims to prevent borrowers from facing difficulty in servicing loans when normal interest rates become effective.
  • The decision is expected to have a cooling effect on demand for housing loans and eventually help stabilize real estate rates.

Statistics:

  • 2%: New standard asset provisioning by commercial banks for teaser loans.
  • 0.4%: Current standard asset provisioning for teaser loans.
  • 8.5%: Interest rate offered by HDFC up to March 31, 2011.
  • 9.5%: Interest rate offered by HDFC between April 1, 2011 and March 31, 2012.
  • 1.5%: Interest charge over and above base rate by ICICI Bank in the third year of the loan.
  • 8%: Interest rate charged by SBI for the first year.
  • 9%: Interest rate charged by SBI for the second and third year.
  • 0.4%: Initial provisioning for teaser loans is now increased to 2% by RBI.

Sources:

  • "RBI Takes Action Against Teaser Loans", The Indian Express Online Media (2010).
  • "RBI's Annual Review of Monetary Policy", Reserve Bank of India (2010).
  • "Bankers Expect RBI to Define Teaser Rates", The Indian Express Online Media (2010).