Persistently low credit demand has brought ‘teaser loans’ back into focus with SBI chairman Arundhati Bhattacharya on Thursday urging the RBI to allow lending to home loan customers below base rate for a limited period.
Speaking at an event where RBI governor Raghuram Rajan was also present, Bhattacharya said: “In fact, the first suggestion that I made (was) that, for a limited period, home loans could be given at below base rate for the already heavy stock of housing.”
She said SBI’s home loan offering at 8% during the 2008 economic crisis was one of the factors that had helped lift demand. “Of course, at that time, it was tagged as a ‘teaser’, but, we at SBI, refute that because the due diligence conducted for those loans was same as for others. Even the eligibility (criteria) was same as for regular loans,” she said.
The only exception, she said, was that for the first two years, the customer was allowed to repay at a lower rate.
“Today, the base rate is 9.7%. I am told that real estate inventory is at a two-year high and I was thinking if it is possible for a little while… could something of this (teaser loan) kind be allowed, given the fact that this is one portfolio where NPAs are the lowest,” said Bhattacharya.
Teaser loans were introduced by State Bank of India in February 2009 with a fixed rate of interest for the first three years in the range of 8-8.5%, which was then linked to its benchmark prime lending rate – at 12.25%. The RBI defines teaser loans as those given at comparatively lower rates of interest in the first few years, after which they are reset at higher rates.
On credit pickup, Bhattacharya said SBI’s first quarter results showed a credit growth of just 6.6%. This, too, she said, was masked to an extent by a higher growth in international book, as the domestic growth was actually 5.5%.
Touching upon hiring constraints, the SBI chief admitted that “we have a bit of a missing middle, so to speak”.
She said up to scale three, public sector banks were quite competitive in terms of salaries, but when it came to scale four and five, they come towards the end of the range and, after scale six (deputy general manager level), the salary stagnated.
Speaking on the rising NPA burden, Bhattacharya said the moment an asset was declared an NPA, giving further money to it — which is often required for stressed assets — became almost impossible. “First, you will actually be bloating your NPAs further by giving it more money and, second, if you look at PSBs and the kind of questioning we face, it is very difficult to manage. As a result, most banks do not have any incentive once it is treated as an NPA to do anything about it,” she said.