Mumbai: The nation's largest lender, SBI on Wednesday said it will end the teaser home loan scheme from May 1 and new credit will attract an interest rate of up to 10.25 per cent. The decision, which comes within weeks of Pratip Chaudhuri taking over as chairman of the bank, would make the SBI's housing loan expensive for new borrowers from May 1.

The SBI is the home loan leader with 18 per cent market share with an exposure of nearly Rs 37,000 crore in the segment.

Under the new floating rate scheme, loans up to Rs 30 lakh would attract an interest rate of 9.50 per cent, those between Rs 31-75 lakh, 9.75 per cent and credit above Rs 75 lakh would attract 10.25 per cent rate.

"The SBI Easy Home Loan and SBI Advantage Home Loan (teaser rate products) will be replaced by a new floating rate schemes on par with other commercial banks, but still considerably lower than the immediate competition," Chaudhuri told reporters here.

Earlier Chairman and MD O P Bhatt had defended the teaser loan scheme, under which SBI was offering lower rate of interest of 8-8.5 per cent for the first three years, against stiff opposition from the Reserve Bank.

Teaser loans have been a hit with customers but RBI had raised concerns that it might become a burden for them when rates begin to rise after the initial 2-3 years and may increase the default rate.

Referring to the stand taken by the regulator on the teaser loans, Chaudhuri said, "at the end of the day the regulator is right. The regulator is the final word. We cannot afford to be in perpetual conflict with the regulator, hence this decision."

The bank, however, said the new rates will not be applicable to the existing borrowers, but only to the new loan takers. The bank also hiked the lending rate for auto loans and scrapped the pre-payment penalty on all its products, besides reducing the loan processing fees.

The withdrawal of teaser rates follows the bank hiking its lending rate by 25 basis points making loans across segments costlier.

SBI had launched teaser home loan schemes in August 2009.

This is a major shift in the SBI approach to RBI, as on his last interaction with the media on March 30, previous chairman Bhatt had said that "the RBI did not understand his product."

Similarly, the bank has revised upwards the auto loan products too, which would see the effective lending rates going up by 2.25 per cent.

However, Chaudhuri claimed that, "this still works out to be the cheapest in the industry as the effective EMI on a sever-year auto loan is still a low Rs 1,670 per lakh."

Further, the bank today also launched the SBI Advantage Car loan Scheme, under which credit would be provided at 10.75 per cent for a maximum period of seven years.

The SBI had sold Rs 36,788 crore worth home loans under the special scheme. Uncomfortable with special rates, RBI had increased provisioning for teaser loans to 2 per cent from 0.4 per cent earlier, which would result into a one-time provisioning outgo of Rs 587 crore for SBI.

The overall home loan asset is Rs 86,000 crore of which Rs 36,788 crore are under the teaser scheme, given to over 4 lakh borrowers.

Last fiscal, the bank saw its home loan portfolio growing at 20 per cent. Irrespective of the rollback, the bank is confident of maintaining similar growth momentum this fiscal too, as Chaudhuri feels that the product is still the most competitive one in the market, especially vis-à-vis its immediate competitors HDFC and ICICI Bank.

Before the teaser loans, SBI was the No 2 mortgage player, trailing HDFC.

Similarly, in the auto loan space too, the bank took the leadership position and today enjoys 17 per cent market share with an outstanding of Rs 20,000 crore. Last year it financed 2.6 lakh cars or 13 per cent of the entire vehicles rolled out in the market.

Under the new rates, the auto loans will be costly up to 2.25 per cent above the base rate of 8.5 per cent. However, this would still be the cheapest, according to Chaudhuri as it still the EMI per lakh of an auto loan will still be Rs 1,670.