Barely a fortnight immediately after Pratip Chaudhuri took charge as the chairman, State Bank of India (SBI) has decided to withdraw a single of the most controversial, but common, items 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Introduced by Chaudhuris predecessor, O P Bhatt, in early 2009, the teaser loan scheme will be withdrawn from May possibly 1. The scheme charges a lower rate in the initial years. Teaser loans account for a third of SBIs household loan portfolio.
The Reserve Bank of India (RBI) has been against such schemes as it fears higher defaults immediately after the rates go up in later years.
The new management mentioned even if a bank thinks a item is good, the regulator has the final word. One particular can't be in a state of perpetual conflict with the regulator, Chaudhuri mentioned.
In the new household loan scheme, the interest rate on loans up to Rs 30 lakh will be 9.five per cent, although for loans between Rs 30 lakh and Rs 70 lakh the rate will be 9.75 per cent. The rate for household loans above Rs 75 lakh will be ten.25 per cent.
For vehicle 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, generating them floating.
Although the powerful rate will rise, SBI has provided a sweetener by waiving the pre-payment penalty.
Theres a feeling among buyers that the pre-payment penalty is a hidden charge. We consider if the consumer is receiving a superior deal from other banks, we dont deserve to be there, Chaudhuri mentioned.
To discourage banks, RBI had enhanced 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 first withdraw the scheme, he mentioned.
If RBI insists on higher provisioning, the bank has to do it in the fourth quarter itself. The extra provisioning of Rs 537 crore is almost a single-third of SBIs net profit in the fourth quarter of 2010-11. SBI has disbursed Rs 36,788 crore under the scheme to 400,000-500,000 borrowers.
The extra provisioning can be written back as soon as rates are set higher, that is, immediately after three years, Chaudhuri says.
Regardless of the withdrawal of the common item, the management thinks the demand for household loans will continue and 20 per cent growth in the segment is achievable.
ICICI and HDFC are our principal competitors. Our pricing is really competitive. Growth in this segment will need to not be affected, Chaudhuri mentioned.
Asked if SBI was seeing delinquencies on household loans, Chaudhuri mentioned the slippages were 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 household loan
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