Teaser Loans Again? SBI Asks Reserve Bank to Allow Sub Base Rate Loans
Aug 21, 2015
Source : Toi


Mumbai: Piling inventory levels of real estate players in the country on Thursday brought the controversial 'teaser loans' back into focus, with State Bank of India asking the Reserve Bank of India to allow lenders to sell loans below the base rates.

"I am told that real estate stock is at two-year high and I was thinking if it is possible for a little while... Could something of this (teaser loan) kind could be allowed given the fact that this is one of the portfolio where NPAs (non-performing assets) are the lowest," Arundhati Bhattacharya, chairperson of the country's largest lender, told RBI Governor Raghuram Rajan at a conference here.

Mr Rajan acknowledged the demand, but did not appear very keen to accede and said that the larger need is to push demand by a price cut by the builders.

"I think we need the market to clear. With growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier, but we also don't want to create a situation where prices stay high at the level which means demand can't pick up," Mr Rajan said at the second SBI Banking and Economic Conclave.

It would be a "great help" if realty developers sitting on unsold stock bring down prices, he said, adding that once the prices stabilize, more people will be keen to buy houses.

Echoing the need for developers to bring down prices, Ms Bhattacharya reminded Mr Rajan about the teaser loan product, where it used to lend below the base rate, which is the minimum rate of lending. She said the product was able to revive demand in the days after the 2008 crisis.

"In 2008 when the economy started faltering, one of the things that made demand go up was the 8 per cent housing loan that SBI did. Of course at that time it was tagged as a teaser, we in SBI refute that because the due diligence that went in for those loans are the same for other loans as well, even your eligibility was same as regular loans."

"Only thing is that for the first two years the customer is allowed to pay at a lower rate. What did happen was that demand really kicked in," she said.

There was an intense fight between the RBI and the bank over this product and the then SBI chairman O P Bhatt had gone to the extent of saying that the regulator did not understand the product.

Mr Rajan said he believes that if real estate developers, who are sitting on unsold stocks, bring down the prices, it will be a very great help to the sector.

"Once there is a sense that prices have stabilized, more people will be willing to buy. I don't know what the level is and if it is across the country. It is not clear that in some parts of the country, there is excess stock."

"I think we need the market to clear (the excess stock) and with growing unsold stock, we need to see the ways to do it. Some of it might be by making loans easier," he said.

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