ICICI Bank lanching "Teaser" rates

India’s largest private sector lender ICICI Bank on Thursday launched a home loan product that offers the benefit of repaying loans at fixed rate in the first one to two years. While the bank refused to call it a teaser scheme, a section of banking industry alleged it was just that. Teaser home loans are so called because the home buyer is tempted with a lower rate of interest for a certain period initially, and later on, become market linked.

“This is no teaser scheme. The new scheme does not offer any discount on the rate of interest,” an ICICI Bank spokesperson told Moneycontrol.com.

“The only difference between this and the existing schemes is the fixed interest rate for one to two years. Customers can opt for this scheme if they feel interest rates will continue to rise,” the official said.

But ICICI Bank’s rivals don’t think so.

“It looks like a teaser rate. The catch is that they did not offer any discount on the rate of interest. The scheme is a combination of fixed and floating rates, which is one of the basic features to qualify for a teaser scheme. Whether RBI treats it as a teaser rate, remains to be seen,” an official from a leading private sector bank told Moneycontrol.com on condition of anonymity.

In the recent past, Housing Development Finance Corporation or HDFC, and later State Bank of India had to withdraw their ‘teaser’ loan schemes, under pressure from the Reserve Bank of India.

The new scheme at a glance:

Loan Amount	Fixed Rate of Interest (%)
Upto 25 lakh	10.50 – 1 yr 10.75 - 2 yr
25 – 75 lakh	11.00 – 1 yr 11.25 - 2 yr
Above 75 lakh	11.50 – 1 yr 11.75 - 2yr

After the fixed tenure, all loans will be on floating rates that will be linked to the ICICI Bank base rate plus margin decided at the time of sanction of the loan. Its current base rate stands at 10%.

“Fixed interest rates will shield customers from frequent changes in home loan interest rates and protect them from any rise in interest rates over the next one year or two years, depending on the product availed by the customer,” said a release issued by the bank.

So, what could be the reason behind such launch?

Moneycontrol.com spoke to a few officials at rival banks and to banking analysts. This is what we gathered from such interactions:

• Home loans are considered safe bet as default rates are very low there. Hence, the bank may be trying to attract more home loan customers. This in turn, will help maintain their asset quality.

• If RBI continues to hike rates to tame the rate of inflation, such scheme will help expand home loan book.

• Before RBI starts slashing rates, the lender wanted to take benefits of higher rate of interest. If rates are fixed for the next one to two years, it will not have to pass on the lower cost of funds to those customers.

• The scheme could be more of a hedging tool. ICICI bank may be looking to foray into tier 3 or 4 cities wherein public sector banks are traditionally dominant. Such scheme especially with a loan amount of Rs 25 lakh, it is expected to garner good business.

These products will be available from August 19. However, it is not clear how long the product will remain open for customers.