SBI chief bats for reintroduction of teaser loans; ICICI Bank differs

State Bank of India and ICICI Bank are not on the same page when it comes to reintroducing the controversial teaser loans that were shelved four years ago after the regulator flagged asset quality issues, according to a report published in a national daily.

Speaking at an event in Mumbai during the weekend, SBI Chairman Arundhati Bhattacharya said, “I still believe there is a place for teaser loans mainly because when people take loans in initial days, they need some leeway. But as time passes, a higher EMI does not pinch much as their salaries go up that can service a higher EMI.”

However, speaking at the same event, ICICI Bank ED Rajiv Sabharwal said, “We’ve always preferred standard rates over enticing options as in the former the customer is aware from day one what the rate is.”

Teaser home loans are offered at a fixed low rate of interest in the initial years and are then adjusted to a higher floating rate for the remaining tenure.

SBI and other lenders had withdrawn such loans in 2011 after the then Reserve Bank of India governor D Subbarao expressed concern that such loans may pose a possible risk to asset quality.

Bhattacharya said teaser loans are actually differentiated EMIs, or step-up loans, where the lender charges EMIs at lower rates initially and then restores it to higher rates.

The objective of the scheme started by her predecessor OP Bhatt in late 2011, she said, was to help fresh home loan borrowers get some breathing space in the initial years as they would have exhausted their resources while buying the new property.