Axis Bank on Thursday announced the launch of an affordable home loan product which will allow borrowers applying for loans of up to Rs 30 lakh the benefit of 12 equated monthly installments (EMIs) being waived. Waivers will apply only to those borrowers who have been regular with repayments. They will come into effect in a staggered manner, with four EMIs each being waived off at the end of the fourth, eighth and 12th year from the date of the first disbursement. The waiver will take the form of a reduction in the tenure of the loan. To be eligible for the waivers under the product, called Shubh Aarambh home loans, a loan must have a tenure of between 20 years and 30 years.
Speaking at the launch, Rajiv Anand, executive director for retail banking at Axis Bank, said the product was an attempt to reward the good repayment behaviour. “There’s nothing to stop you from making any kind of pre-payments, etc. However, you’ve got to ensure that there are no delays in repayments during the tenure,” he said.
When asked if it will impact the net interest margin as the tenure of the loan is coming down, Anand said the bank will benefit from the better credit behaviour and longevity of a loan as pre-payments will be less. But a single missed EMI will disqualify the borrower from getting the benefit, while on the longevity front, incentives can help reduce prepayments.
Asked if this would qualify as a ‘teaser loan’ about which the regulator has had many concerns in the past, a senior bank official replied in the negative, saying there is no differential rates of interest applied here, which is the typical hallmark of a teaser loan.
Affordable housing loans account for about 4% of Axis Bank’s retail mortgage portfolio, Anand said. This would be a little over Rs 3,000 crore, based on numbers in the bank’s results for the quarter ended June.