Barely a fortnight after Pratip Chaudhuri took charge as the chairman, State Bank of India (SBI) has decided to withdraw 1 of the most controversial, but well known, goods in the Indian banking sector in current occasions.
Introduced by Chaudhuris predecessor, O P Bhatt, in early 2009, the teaser loan scheme will be withdrawn from Could possibly 1. The scheme charges a lower rate in the initial years. Teaser loans account for a third of SBIs home loan portfolio.
The Reserve Bank of India (RBI) has been against such schemes as it fears higher defaults after the rates go up in later years.
The new management said even if a bank thinks a item is good, the regulator has the final word. A single can't be in a state of perpetual conflict with the regulator, Chaudhuri said.
In the new home loan scheme, the interest rate on loans up to Rs 30 lakh will be 9.5 per cent, even though for loans between Rs 30 lakh and Rs 70 lakh the rate will be 9.75 per cent. The rate for home loans above Rs 75 lakh will be ten.25 per cent.
For automobile loans, the rate will be ten.75 per cent. The maximum tenure has been kept at seven years. Both housing and auto loan rates have been linked with the banks base rate, making them floating.
Although the reliable rate will rise, SBI has offered a sweetener by waiving the pre-payment penalty.
Theres a feeling among customers that the pre-payment penalty is a hidden charge. We consider if the client is receiving a improved deal from other banks, we dont deserve to be there, Chaudhuri said.
To discourage banks, RBI had elevated the provisioning requirement on teaser loans by 5 occasions to two per cent.
SBI is now in talks with RBI for a waiver. The regulator says we have to initially withdraw the scheme, he said.
If RBI insists on higher provisioning, the bank has to do it in the fourth quarter itself. The additional provisioning of Rs 537 crore is practically 1-third of SBIs net profit in the fourth quarter of 2010-11. SBI has disbursed Rs 36,788 crore beneath the scheme to 400,000-500,000 borrowers.
The additional provisioning can be written back once rates are set higher, that is, after three years, Chaudhuri says.
Despite the withdrawal of the well known item, the management thinks the demand for home loans will continue and 20 per cent growth in the segment is achievable.
ICICI and HDFC are our principal competitors. Our pricing is rather competitive. Growth in this segment must not be affected, Chaudhuri said.
Asked if SBI was seeing delinquencies on home loans, Chaudhuri said the slippages had been not there as of now. He added it was too early to say if non-performing assets would rise as the portfolio was but to be seasoned.
SBI home loan
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