Usha Thorat, RBI Deputy governor had expressed the central bank’s concern over the scaling down of loan interest rates by Indian banks for limited period to lure borrowers. She said while addressing a banking conference, “Teaser rates do cause a concern. Banks should ensure that income of borrowers is adequate to service the loan when recovery picks up and interest rates return to normal levels.”
To entice customers, many banks like SBI, Axis Bank, ICICI Bank and HDFC Bank had earlier started offering home and auto loans at low fixed rates in the range of 8% – 8.5% for the first two years. After this period, the interest would be charged at a floating rate.
The matter of concern is the ability of borrowers to stick to loan repayment schedule when the floating interest rate goes up after the initial period. “I hope banks are ensuring that borrowers are aware of the implications of such rates and the appraisal takes into account the repaying capacity of borrowers when rates become normal,” she said.
However, the bankers defended their decision to go in for low fixed loan rates to woo customers, though for a limited period. SBI Chairman OP Bhatt said that these special rates have helped immensely in reviving the housing loan demand.
“We had done it when the credit offtake was almost nil. Hence, we were compelled to park our money with RBI at 3.25% interest rate. So, what is wrong if we are getting 8% interest rate on home loan,” Bhatt demanded. He added that this scheme has not placed any pressure on bank’s margin and there was no governmental coercion to implement lower rates.
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