On last day in office, Om Prakash Bhatt extends SBI teaser scheme

In a parting gift of sorts for Om Prakash Bhatt, who on Thursday retired as the chairman of State Bank of India (SBI), the Reserve Bank of India (RBI) is learnt to have given its approval for extension of the bank’s most innovative product —- the special home loan scheme — beyond March 31.

“The decision to extend the loan has been taken at least till the time the base rate is changed or the monetary policy takes place, whichever is earlier. As of now the same scheme has been extended,” said an SBI official who did not wish to be named.   

SBI’s base rate is currently at 8.25% and the RBI is to announce its monetary policy for FY12 on May 3. Many economists are of the view that one more hike in key policy rates is in the offing on May 3 since inflation continues to be a cause of concern.

The central bank was earlier concerned that the teaser loan scheme might be attracting customers who lacked the capacity to repay the loans.

But Bhatt had put up a strong defense. “The special home loan product is not at all similar to the products available in the global market,” he said on Wednesday.

“In America, the home loans which were given due to which the subprime crisis was caused were given to people who had no jobs, no income, no assets. Our loans are given on job or income. To see the exact salary, we ask for the income tax deduction certificate. Affordability and eligibility are given due consideration while giving the loan. We tell the borrower what will be the EMI (equated monthly instalment). It is totally transparent.”

Beginning January 1, SBI has been charging an interest rate of 150 basis points (bps) over the base rate, which works out to 9.75%, for loans up to `30 lakh. Loans above `30 lakh and up to `75 lakh are charged interest rate at and base rate plus 175 bps (10%).

The special home loan scheme has a provision of concession. So, customers can avail loans up to `30 lakh at a discount of 1% in the first year (8.75%) and 0.25% for the second and third years (9.50%). Similarly, for loans above `30 lakh and up to `75 lakh, the discount will be 1.25% in the first year (8.75%) and 0.50% in the second and third year (9.50%). “This product is giving good business to SBI, so its extension is good for them,” said Suresh Ganapathy, head of financial research team, Macquarie Securities.

As at December 31, 2010, outstanding loans under the special home loan scheme stood at `82,376 crore. Till that date, SBI was offering these loans at a fixed rate of interest for the initial few years of loan repayment, which was 8% for the first year, 9% for the second and third years, and at a floating rate thereafter.
Meanwhile, SBI on Thursday inaugurated the 25,000th ATM and also opened its 9,000th branch under the rural/ semi-urban category.