SBI chief Bhatt continues to back ‘teaser’ loan rates

State Bank of India chairman Om Prakash Bhatt on Sunday continued to defend his bank's 'teaser' or floating rate home loan scheme, saying it poses no risk to the system, the bank or customers.

Bhatt, who took over the reins of the country's largest lender in June 2005 as a surprise choice of the government, told media persons on the sidelines of the 41st World Economic Forum (WEF) meeting in Davos that the teaser loans attracted 2,92,000 customers in 2009-10, totalling to Rs10,000 crore.

''Almost 80 per cent of these customers took loans of less than Rs10 lakh. It is only the aam admi (common man) who takes such a loan,'' he said.

Launched in the beginning of 2009, the scheme, taken up by most other banks as well, provided a Rs20,000-crore shot to a slowing economy that was indirectly hit by the global financial crisis. However, other banks have since discontinued the scheme, and the Reserve Bank of India also seems to disapprove of it.

The RBI has sought higher provisioning from banks for such loans, but Bhatt said he sees no logic in the demand, particularly since the scheme is entirely transparent, and doing so would adversely impact his bank's bottomline and share prices.

Under the teaser rate scheme, banks provide credit at lower rates for first few years and subsequently raise the interest rates. The RBI and others are concerned that the rising interest rates in subsequent years might increase home loan defaults. In fact HDFC chairman Deepak Parekh has openly voiced his opposition to the scheme.