State Bank of India (SBI) offers lower home loan rates under the new special scheme with regards to the Reserve Bank of India’s (RBI) concern (about teaser rates) and accordingly has formulated a loan pricing policy. “This is not a continuation of our old scheme…the difference is that we have linked the rates of interest to the base rate,” a senior bank official said after the announcement of the new rates.
Interest rates: For home loans of up to Rs 75 lakh 8.5% interest rate for the first year and 9.25% for the next two years.
Validity: The special rates are valid between January 3 and March 31, 2010.
Change in calculation: The new card rate applicable is higher than bank’s base rate (or the minimum lending rate) and then places a discount on card rate. The same formula is applicable on auto loans as well.
Previous rate: 8% for the first year and 9% for the next two years. (These were not linked to the base rate).
When was ‘teaser rates’ introduced: SBI in February 2009 had launched lower rates for the initial years of the credit period which soon came to be known as ‘teaser rates’. These were introduced when SBI was flush with over Rs 1,00,000 crore of excess liquidity.
Response: The scheme was in instant hit but invited sharp criticism from many quarters, including the RBI which had expressed concerns over the likely formation of asset bubbles due to teaser rates. The scheme was also flayed for not extending the concessional to existing borrowers.
Many lenders including HDFC followed SBI and introduced teaser rates but discontinued when liquidity tightened.
Base rate: SBI increased its minimum rate of lending or the Base Rate by 40 basis points (bps) to 8%.
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