In 2008, when the economy started faltering in the wake of the global financial crisis, India’s largest bank had introduced home loans whereby the interest rate in the first two years was low (at 8 per cent) and the rate from the third year onwards would be at the prevailing market rates.
Teaser home loans
Rivals tagged SBI's 'Happy Home Loan and Easy and Advantage Home Loan' loan as ‘teaser’ and criticised SBI. Both these loans held the interest rates fixed and below the market rate in the initial years. Thereafter, the rates turn floating.
However, fearing loss in market share, SBI's rivals quickly introduced it. Then the scheme was also criticised as existing home loan customers did not get the benefit of soft interest rates.
“In 2008, when the economy started faltering, one of the things that really made the demand work was the 8 per cent housing loan that SBI gave. Of course, at that point of time it was tagged as ‘teaser’ loan.
“We, in SBI, refute that because the due diligence that went into giving those loans was the same as would have been for a regular loan. Even the eligibility was like the regular loan,” said Bhattacharya in a Tete-a-Tete session with RBI Governor at the bank’s conclave.
Pick-up in demand
She underscored that demand really kicked in with the introduction of the home loan and three years later Kausik Basu, who was the Chief Economic Adviser to the Government, acknowledged this in the Economic Survey saying that this was one of the tipping points.
“Now today the base rate is at 9.70 per cent… I was just thinking is it possible that for a little while something of this kind can be allowed given the fact that this is one of the loan portfolios where the NPA (non-performing assets) is the lowest,” said Bhattacharya.
The NPA in bank’s home loan portfolio in the Rs. 30 lakh and above bracket is only 0.29 per cent.
“So, there has been no bubble built up over here. And, maybe, we could also ask the realty players to bring down their rates also equally. This is something that can be used as a kicker for getting the retail demand started,” said the SBI chief.
In response to Bhattacharya’s request, Raghuram Rajan, RBI Governor, said: “Well, I never say no to your ideas. We will examine them.”
“I do also believe that if real estate developers, who are sitting on unsold stock, started bringing down prices that would be a very big help to the sector because once there is a sense that the price itself has stabilised then more people will be willing to buy….,” said Rajan.
The Governor said: The real estate market needs to clear and with growing unsold stock we need to figure out ways to do it. Some of it may be by making loans easier. But the RBI also don’t want to create a situation where prices stay high and the demand does not pick up.''
Buttressing the stand of the country's biggest lender on teaser home loans, the Economic Survey of 2010-11 said the fact that the scheme enabled many new home buyers to enter the market speaks well of the inclusiveness of the scheme even as the sub-prime segment was deliberately left out.
The Survey said the ‘teaser loans' terminology is sufficiently tainted for a neutral term to be of some value. It referred to such loans as ‘terraced loans' i.e. loans in which the monthly repayment of instalment rises over time.
Source : Thehindubusinessline