Mumbai: With the aim of increasing mortgage book volumes and expecting better credit performance, Axis Bank launched a mortgage loan product on Thursday that involves giving up a few IMEs during the course of a loan.
The third largest private sector lender will waive four monthly equities (EMIs) each at the end of the fourth, eighth and twelfth years of a two-year loan.
This means that if a borrower takes a loan for 20 years, the consumer will get 12 of the IME resigned, which the bank said will help to save Rs 3.09 lakh on a loan of Rs 30 lakh.
The exemptions will apply for loans of up to Rs 30 lakh and will be given in the form of a reduction in loan holdings, he said, adding that the interest rate remains the same at 8.35 percent.
When asked whether it will affect the net interest margin as total tenure is declining, chief executive Rajiv Anand said the bank will benefit from better credit performance and the longevity of a prepaid loan will be lower.
But a single lack of EMI will disqualify the borrower from getting the benefit, while on the longevity front, incentives can help reduce prepayments, he said.
Asked if this would qualify as a “teaser loan” on which the regulator has had many concerns in the past, a senior bank official responded negatively, saying there are no differential interest rates applied here, which is the typical hallmark of a Loan Teaser
The bank already has a special product for the affordable housing segment called ‘Asha’, while the new product is named ‘Shubh Arambh’, said the official, adding that the first is aimed at the lower income group Rs 25 lakh).
At present, Asha loans account for about 5 percent of its mortgage book, Anand said. In June, mortgage loans made up a whopping 44 percent of the retail portfolio of Rs 1.68 trillion dollars from the bank.
The new product is aimed at first-time home buyers, but can also be used by switching lenders, Anand said.
