The third-largest private sector lender, Axis Bank, has announced a new home loan product, wherein the bank will waive off four equated monthly instalments (EMIs) each, at the end of the fourth, eighth and the 12th year of a loan. This means that if a borrower takes a 20-year loan, the consumer will get 12 of the EMIs waived off, which the bank claims, will help customers to save Rs 3.09 lakhs on a Rs 30-lakh loan.
The waivers will be applicable for loans of up to Rs 30 lakhs and will be given in the form of reduction in loan tenures, it said, adding that the interest rate stays the same at 8.35 per cent. The new product is aimed at first-time home buyers but can be availed of by those switching lenders as well, executive director Rajiv Anand said.
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When asked if it would impact the net interest margin as the total tenure would come down, Anand said that the bank would benefit from better credit behavior and longevity of a loan, as pre-payments would be less.
However, a single missed EMI, will disqualify the borrower from getting the benefit, while on the longevity front, the incentives can help reduce prepayments, he said.
Asked if this would qualify as a ‘teaser loan’ about which the regulator has had many concerns in the past, a senior bank official replied in the negative, pointing out that there were no differential rates of interest applied here, which was the typical hallmark of a teaser loan.
The bank already has a special product for the affordable housing segment called ‘Asha’, while the new product is christened ‘Shubh Arambh’, the official said, adding that the former was aimed at the lower income group (of loans up to Rs 25 lakhs). At present, Asha loans account for around five per cent of its mortgage book, Anand said. As of June 2017, home loans constituted a whopping 44 per cent of the Rs 1.68 trillion retail portfolio of the bank.
