Bhatt refuses to do away with teaser loans
By Joseph Samson
Nov 12, 2010
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O P Bhatt, chairman of the largest lender of the country, State Bank of India has refused to go with other lenders in ending the teaser home loan scheme of banks. He ignored the suggestion for the same from Deepak Parekh, chairman of HDFC, the largest housing finance company of the country.

"The special home loan scheme is a desirable product for consumers and profitable for our bank," Mr Bhatt said. "No one can claim that the special rate loans are not good for the customer," he added.

Mr Parekh, however said, "I would like to see it die down, but it must be done universally, because there are many people who talk on a one-on-one basis that we don't like this product. It is a product which has caught the fancy of individuals."

SBI charges 8% interest in the first year, 9% in the second and third year following which the rates correspond to market rates. HDFC charges 8.50% up to March 2011, 9.50% up to March 2012, and floating rate after that.

"This practice raises concern as some borrowers may find it difficult to service the loans once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective," RBI governor Duvvuri Subbarao said on November 2. "It has been observed that many banks, at the time of initial loan appraisal, do not take into account the repaying capacity of the borrower at normal lending rates."


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