Special home loan plan Continues: SBI
The Reserve Bank of India and State Bank of India may still be arguing on whether the fixed-cum-floating rate home loans should be termed ‘teaser’ or ‘terraced’. But small borrowers such as Kamlesh, a nurse in a government hospital, say that they couldn’t have asked for a better deal at a time when rates are soaring. Not only did she get a Rs 15 lakh home loan at a time when others were dithering but has so far managed to avoid a steep rise in her equated monthly installment (EMI) or her loan tenure.
And, to bring cheers to borrowers SBI is likely to extend its offer.
Kamlesh is among the 7.29 lakh home loan borrowers who have opted to avail of the scheme up to February. In all, the bank has sanctioned close to Rs 90,000 crore under the special scheme that was launched at the height of the global financial crisis in 2008. There are others such as Monu Rana, a manager in a global BPO outfit, who has availed of a loan of Rs 8.5 lakh but is looking to upgrade to a bigger house in three-four years. So Rana being hit by higher rates is unlikely.
In the first year of the loan term, the rate is fixed at 8.5% before rising to 9% in the second and the third year. And, from the fourth year onwards, it turns flexible although bank officials say that the increase is not significant (see table).
But it is the EMI that borrowers will have to pay from the fourth year that has caused a furore, first from rivals, and then from the RBI, which has increased the amount that banks have to set aside to meet the RBI norms. This had prompted other lenders to withdraw the product from the market. But SBI has so far kept the offer intact, barring an increase in interest rate from what was originally offered, by tweaking the plan to stay clear of the higher provisioning requirement.
The RBI has argued that borrowers do not know how much they would pay when the interest rate turns flexible. This, they say, could result in default. Some of SBI’s rivals have gone to the extent of terming it India’s sub-prime. “By that time (when interest rate turns flexible) my income will also go up so I will be better equipped to handle the higher burden. Had I got a loan from someone else I would have had to deal with the same uncertainty from the initial days itself,” says Kamlesh.
SBI officials, led by chairman OP Bhatt, say the assumption is not true. “We are clearly mentioning what the terms are. There is no opacity as is mentioned in the Economic Survey,” Bhatt says. SBI officials add that there has been no dilution in due diligence or eligibility norms. They point out that default rates have not gone up for the country’s largest lender.
Besides, Bhatt says the loan scheme has helped several first-time buyers who would have faced difficulty in paying higher EMIs during these times. That is borne out by the average ticket size, which is Rs 12 lakh. Bank officials also say that the regulator did not make any adverse comments on the fixed-cum-floating schemes when almost all banks were offering the product at the height of the crisis. So, will Bhatt extend the validity of the offer beyond March 31, the day he superannuates? That’s something that he is unwilling to comment on. But from all available indications the scheme will live for another day.
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