ICICI Bank had launched dual-rate home loans that are similar to what SBI had launched when OP Bhatt was the bank's chairman.
The largest private bank in the country, ICICI Bank, launched its scheme one month back wherein customers had the option to fix the interest rate for one or two years.
HDFC's teaser loan provides the option to fix interest rates for the first three or five years. After the end of the stated period (3 years to 5 years) the customer's loan will be shifted to a floating rate. The bank has branded these loans as 'Fixed First". Media reports state that the customers must apply on or before October 31, 2011, to avail the offer. The first disbursement will be on or before November 30, 2011.
Keki Mistry, chief executive officer, HDFC was quoted in the newspaper 'DNA' as, “We have been discussing this product for some time now; it"s just that we came out with it now".
The controversy: The Reserve Bank of India (RBI) has been completely against the dual-rate schemes which it said was equivalent to sub-prime mortgage. When this scheme was launched by the SBI, it led to a confrontation between the RBI and the SBI chairman OP Bhatt. Though Bhatt kept defending it, but after his tenure ended the SBI withdrew the scheme.
It is to be seen how the central banker will react to the schemes by ICICI Bank and HDFC.
Mistry defended the product by stating to the media that the 'Fixed First home loans offered by HDFC is not a teaser rate since its interest rates are on par or above the current market rates'.
VIEW: In its mid-year review of monetary policy in November 2010, the RBI had raised provision for teaser loans by five times — from 0.4% to 2%. Such higher provisioning will dent the bank"s profit. Neither of the banks have classified their current offering as a teaser loan. If the RBI view remains constant and requires the two banks to maintain the provisions in accordance with the regulators provision of 2%, then both banks will be reporting lower profits.