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Feb 5, 2012

[Economy] Teaser Home Loans: Meaning, Implications

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Question from Manish Kumar:
I want you to throw some light on "TEASER LOANS".. I have searched on the net and tried to understand the thing but not satisfied.  

Meaning of Teaser Home loans.


  • In the first few years, you've to pay a very low interest rate on your home loan, but afterwards, the interest rate will be normalized (and increased)
  • SBI started this in India, in 2009 with two products:
  • 1) Happy Home Loan 2) Easy and Advantage Home Loan.
  • Both these loans hold the interest rates fixed and below the market rate in the initial years. Thereafter, the rates turn floating.

Target customers:


  1. Low-income home buyers.
  2. Young people who just got job, married and want to buy a home.

Why RBI is against Teaser loans?


  • RBI had observed that many banks at the time of loan appraisal did not check the repaying capacity of the borrower at normal lending rates of future.
  • RBI fears, this may lead to a housing bubble and sub-prime like situation.
  • If the bank has given loans to people undeserving or unable to pay higher rates later on, Customer may lose the property.
  • Mass scale defaults on home-loans= real estate market crashes, and you get a situation like America's sub-prime crisis of 2007.

SBI's argument in favour of Teaser loans


  • We have chosen the borrowers wisely, it has been a great product especially for the younger borrowers.
  • Young people have lower incomes earlier, and hence lower EMIs, as their income levels increase with time, so will their EMIs.
  • It is an ideal product for the disciplined person who saves money prudently.

Climax



In an attempt to discourage teaser loans, RBI had asked banks to make provision of 2% of outstanding portfolio for such loans with immediate effect.
Result: SBI withdrew teaser home loan plan with effect from 1 May 2010.

Some more GK on SBI


  1. SBI has launched "Bank on Wheels" project in Nagaland to deliver banking services at the doorstep of rural people even where there was no branch.
  2. SBI country's biggest lender, will name and shame "wilful" defaulters and put their pictures in newspapers to get them to pay up
  3. SBI's chairman is Prateep Chaudhari.

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6 comments:

  1. sir what does provision of 2% of outstanding portfolio means in teaser loan given by rbi ?

    ReplyDelete

  2. sir what does this mean-- In an attempt to discourage teaser loans,RBI had asked banks to make provision of 2% of outstanding portfolio for such loans with immediate effect.
    what does 2% of outstanding portfolio means ?

    ReplyDelete

  3. As per my knowledge, outstanding portfolio means -- say if you had taken a loan of Rs 1000 last year and have already paid 500 in instalments then the remaining Rs. 500 is the outstanding portfolio. AND SBI (or whatever bank it is) needs to reserve 2% of that amount with it as liquid funds (just in case its defaulted by you -- mainly to prevent a sub-prime crisis like situation and demotivate banks for such teaser loans as seen in the result).

    ReplyDelete

  4. Mrunalbhai, will you please elaborate
    "In an attempt to discourage teaser loans, RBI had asked banks to make provision of 2% of outstanding portfolio for such loans with immediate effect.
    Result: SBI withdrew teaser home loan plan with effect from 1 May 2010."

    Thanks in Advance

    ReplyDelete

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