ICICI Bank Ltd and Housing Development Finance Corp. Ltd (HDFC) paid attention to the central bank’s reservations over the so-called “teaser” rates in its 2nd November monetary policy review. Due to increase in the cost of funds, both ICICI and HDFC have decided not to continue the scheme beyond 30th November. Although State Bank of India (SBI), will stick to its deadline of 31st December, (when the scheme is due to end).
This means end to the one-year-old practice of attracting homebuyers by offering lower rates of interest in the first few years of housing loans. Home loan seekers will now have to look at rates “above 9% which are bound to increase further in coming months.
ICICI home loan offered a fixed rate of 8.5% in the first year, rising to 9.25% in the second. A regular floating rate would apply in the third year.
HDFC Home Loan offered loans at 8.5% until March and 9.25% for one year starting April 2011, for loans applied for by 30th November.
Why RBI was against ‘Dual rate Home Loans’?
RBI had said that banks do not take into account the repaying capacity of the borrower at normal lending rates at the initial appraisal. Such loans were offered at a discount for the first two years and then rose, reflecting the bank’s real lending rate.
RBI also rose provisioning for housing loans in its last policy review, telling banks to keep aside 2% of the loan value against 0.4% earlier, also serving to make mortgage lending costlier for banks.
According to reports/statistics:
Nearly 20-25% of banks’ outstanding housing loan portfolio of around Rs3.4 trillion was linked to teaser rates as of 30th September. (Reported as on 3rd Nov)
Out of HDFC’s mortgage portfolio of Rs1.06 trillion, nearly 27% is under the special loan scheme that was introduced in December 2009.
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