SBI plans to extend its teaser loan offer beyond March 31

Although many banks have withdrawn their teaser home loan rates but there is a good news that State Bank of India (SBI), the country’s largest lender will continue to offer teaser home loan rates beyond March 31. However formal announcement is yet to come.

As the lending and property rates are going to move up SBI plan as given more room to new home loan borrowers.

According to industry sources, the banking major decision might prompt other lenders to follow suit.

A senior SBI official claimed that the special home loan rate has helped in growth of its retail lending book. “There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11.”

“But the final decision rests with the corporate centre, which will look into the cost and liquidity conditions.”

A senior official in a housing finance company, however, had reservations. “Giving loans at 8 per cent is fine. But to keep it fixed for another year might be quite difficult.”

“With the Reserve Bank of India’s recent hike in repo and reverse repo rates by 25 basis points and an indication of further tightening, interest rates are expected to go up by 100-150 basis points in the next 12 months. Lower lending rates will put pressure on any finance company’s balance sheet,” he added.

According to some market analysts the bank is in a position to lend at these rates as it has a reserve surplus of close to Rs 40,000 crore.

Earlier when SBI had launched its teaser loan products, HDFC Chairman Deepak Parekh had called it a ‘gimmick’. Soon after that, in December, HDFC launched its fixed-cum-floating rate product.

In January 2009, SBI started the rate war, when it offered a fixed rate of 8 per cent for the first year. At that time bank launched two home loan products - SBI Easy Home Loan and SBI Advantage Home Loan.

Under the former scheme bank offered loan up to Rs 30 lakh, with rates of 8 per cent in the first year and 9 per cent in second and third years. At present the rates being offered at 8 per cent for the first year and 8.5 per cent for second and third years. From the fourth year onwards, customers have the option of choosing a floating rate at 2.75 per cent below the benchmark State Bank Advance Rate (SBAR). The “advantage loan” was for amounts above Rs 30 lakh.

Others such as HDFC and Axis Bank followed the SBI move. However Axis bank has withdrawn its two- year fixed rate in February, almost two months before schedule, citing high cost of funds. HDFC closed its offer on February 27, following an extension of two weeks over the February 14 deadline.