RBI warns over teaser rates

Though I am posting this late, just couldn’t resist it. I had posted a while ago that Indian banks are not learning lessons from the recent crisis and offering home loans at teaser rates (see this article for the fight between bankers over teaser rates).

RBI Deputy Gov, Usha Thorat in her recent speech speaks on risk management issues. She says teaser rates as one of the risks banks should watch out:

In the area of housing loans, teaser rates are increasingly being offered which is a cause for concern. I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account repaying capacity of the borrowers when the rates become normal.

Thankfully RBI is talking about it. However, India’s bankers are still not understanding the issue. Their first line of defence is Indian financial system/consumers etc are different. Same was said in 2005 in US as well. 

Well, avoiding these fancy products helped us remain out of trouble at first place. And this is what we were told in times of crisis as well that India does not have such products. How quickly times change. See the number of banks offering these products. It is like a race going on….

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4 Responses to “RBI warns over teaser rates”

  1. Why RBI is ignoring developments in housing sector? « Mostly Economics Says:

    […] teaser rates are making a strong comeback. RBI had warned against these loans and banks had closed (except SBI) these schemes in February. I guess HDFC saw […]

  2. RBI reviews regulatory polices and takes some macroprudential steps « Mostly Economics Says:

    […] thought there was a LTV ratio of 85%, so am surprised to hear there was none. Teaser rates should have been banned long […]

  3. What do you mean by Teaser Rates? « Mostly Economics Says:

    […] banks.   This blog has always expressed displeasure over banks offering teaser home loans (see this and this as […]

  4. FinMin’s Economic Survey is fine with teaser home loan products « Mostly Economics Says:

    […] issue is this stance is contrarian to the stance by RBI.  In many previous posts (this, this, this and this) this blog has pointed RBI’s averseness to the product and its recent moves to […]

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