Teaser interest rates are a subject of regulatory worry, minister of state for finance Namo Narain Meena said. RBI had already expressed worries about teaser home loans being offered by banks.
Mr Meena said, “Borrowers with low financial means may get attracted to such loans on finding the initial low interest rates to be within their financial means, but may land themselves into a financial distress should interest rates start rising”.
Previously, RBI had said that banks are required to explain to their borrowers about the effects of these rates and to evaluate repayment ability of the borrowers when the rates rise.
The government is of the opinion that the resulting default of these loans would have negative effect on the financial stability of the lending banks. The finance ministry has expressed concern at a period when few banks are either reintroducing teaser rates or increasing the duration of existing ones.
Both HDFC and ICICI, have reintroduced the teaser home loans. SBI has extended the term of its scheme till the end of April.