The above table shows the current ‘teaser schemes’ in the market till 30^th April. HDFC and ICICI re-launched their offers while SBI continued its offer. The government is concerned about a rate war that could lead to an increase in non-performing assets with the lenders due to these teaser rates. The government holds the view that such loans will result in a pile up of bad loans, putting pressure on banks’ financial stability.

The Finance Ministry is keen to stop more public sector banks from offering teaser rates ahead of 1^st July, when the more transparent ‘base rate’ regime for loans comes into effect.

Minister of state for finance Namo Narain Meena said, “Borrowers with low financial means may get attracted to such loans on finding the initial low interest rates to be within their financial means, but may land themselves into a financial distress should interest rates start rising”.

Earlier, RBI had raised concerns over teaser loans being offered by banks. It had said that banks need to explain to their borrowers about the implications of such rates and to appraise repaying capacity of the borrowers when the rates go up.

“Some of the schemes under teaser rates have been hugely popular and prompt customers to switch over. Other banks may be forced to come up with similar schemes,” he said, requesting anonymity. Teaser loans schemes offer a low fixed rate in the initial years, but shift to market rates after 2-3 years.

The government may further ask public sector banks to give details of the number of loans processed under such schemes. Amongst the public sector banks, SBI, Canara Bank, Union Bank of India and IDBI has teaser loan schemes. Since the government is the majority shareholder in all public sector banks it has an obligation to protect the interest of both the shareholder and the public.

Banks’ take: Some banks argue that such business decisions should be left to the bank’s management. Banks say it is the cost of funds for each bank that determines the interest rates and each bank has a different business strategy.

Once the base rate comes into existence, the banks will have to redraw their strategy as base rate system will increase the transparency on fixation of reference rates for floating rate loans, said an anonymous senior banker.

According to estimates, since the teaser rate regime kicked in, loans totaling nearly Rs 45,000 crore have been sanctioned. SBI accounts for over 66% of this, lending almost Rs 30,000 crore since February 2009.

Conclusion: All said and done, if a consumer assesses his/her repayment capacity and plans for his loan there is no way that he/she can make the most of the teaser schemes in the market and own his/her dream house.

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