March 27, 2010: Season for teaser loans does not seem to have evanished at least for SBI. The bank is expected to continue with its 8% happy loan scheme even after 31st March 2010 till July. A formal announcement is however yet to be made regarding this issue. SBI chairperson Mr. O.P.Bhatt has said, ?We still have time and will review the situation after March 31.? The major reason behind this plan is the sluggish credit growth still persistent in the country. SBI itself has close to Rs. 50, 000 crore excess funds yet to be disbursed. The rate is expected to continue till the base rate season sets in.

?We may extend the 8 per cent home loan scheme beyond the March 31 deadline as we have a good headroom to give loans at this rate. Our cost of funds has not climbed too much and credit growth is yet to pick up,? a senior SBI official said. An official also said that these teaser home loans have helped in the growth of the retail lending book of the bank. ?There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11,? he said. The teaser loan schemes have been withdrawn by many banks like ICICI, HDFC and Kotak Mahindra.

Public sector banks like Union Bank of India as well as Canara Bank have also withdrawn their schemes. However, mixed set of reactions are coming regarding the issue from other entities. ?There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11,? a senior official from a housing finance company had to say. ?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. RBI Deputy Governor, Shyamala Gopinath said, ?We will not mandate banks to have a particular rate of interest or stop banks from offering special rates. Our concern is only about borrowers? ability to service the loan when the rates climb up in the latter part of the repayment cycle.? SBI was the first bank to launch these special loan rates in February 2009. Other banks had followed suit with SBI. Now the plan to extend this scheme might also be followed by other banks.