SBI blinks,withdraws teaser loans

State Bank of India (SBI) has decided to withdraw one of the most controversial ,yet popular, products in the Indian banking sector in recent times.
Introduced by the former Chairman of SBI,Shri O.P.Bhatt,in early 2009, the teaser loan scheme will be withdrawn from May 1. The scheme charges a lower rate in the initial years. Teaser loans account for a third of SBI's home loan portfolio.
The Reserve Bank of India( RBI ) has been against such schemes as it fears higher defaults after the rates go up in later years. The new management said even if a bank thinks a product is good, the regulator has the final word."One cannot be in a state of perpetual conflict with the regulator", said Pratip Chaudhuri, the present Chairman of SBI.
In the new home loan scheme,the interest rate on loans upto Rs 30 lacs will be 9.5%, while for loans between Rs 30 lacs and Rs 70 lacs the rate will be 9.75%. The rate for home loans above Rs 70 lacs will be 10.25%. For auto loans, the rate will be 10.75%. The maximum tenure has been kept at seven years.Both housing and auto loan rates have been linked with the Bank's base rate, making them floating.
Though the effective rate will rise , SBI has offered a sweetener by waving the pre- payment penalty. SBI has disbursed Rs 36,788 crore under the scheme to 400,000-500,000 borrowers. (BS 21042011)