As rates peak, ICICI offers a teaser on home loan

ICICI Bank, the second-largest lender in the country, on Thursday launched a fixed-rate retail home loan product barely months after larger peer State Bank of India pulled its popular ‘teasers’.

ICICI Bank will offer customers the option to choose a fixed rate of interest for one or two years, after which it will charge applicable floating rate depending on its base rate. 

The bank’s base rate is at 10% now. Customers opting for the product, which would be available from Friday, would have to pay a premium above the base rate after the loan moves to a floating rate.

So are we seeing a return of the teaser loan?

ICICI Bank insists this isn’t the teaser in a new garb. “We are not offering discounted rates in the fixed term like others, so we can’t call this a teaser loan,” said a top official of the bank, requesting anonymity.

Rival HDFC, though, is keeping options open. “The requirement depends on demand. If there is demand and viability, we’ll look at it,” said Renu Sud Karnad, joint managing director, HDFC.

HDFC had discontinued its floating-and-fixed rate loan scheme in late 2010. 

SBI, on the other hand, only offers home loans at floating rates today. 

Market experts, though, are not impressed with the ICICI product. Some feel it is more a play on market sentiment and offers little to the end consumer. 

“If you look at the interest rates being offered under the product, the one-year option seems to be more beneficial as interest rates are set to peak out in about 3-6 months and by the end of next year, it will come down,” said Suresh Sadagopan, who runs Ladder 7 Financial Advisors. 

Other experts see it as an indication that the bank is not very sure about the interest rate scenario and is merely trying to protect its net interest margin by locking customers in for one or two years.

It makes sense for customers to go for a floating rate loan rather than such a fixed lock-in as this will help reduce the cost when the central bank does reduce its policy rates, an expert said.

The rising interest rate scenario doesn’t appear to have tamped demand for houses much. SBI, for one, saw a 20.37% growth in its home loan portfolio during the quarter ended June. The Reserve Bank of India’s data on deployment of credit showed that as of July 29, the housing loan segment had grown 17% from a year ago.