The increase in the cash reserve ratio CRR has started taking a toll on interest rates, with Axis Bank withdrawing its teaser home loan scheme two months before schedule.

India’s third-largest private bank had launched a fixed-cum-floating rate home loan scheme on January 6. It offers 8.25 per cent interest rate for the first two years. Thereafter, the loan is priced 3.5 per cent and 3 per cent less than the mortgage reference rate for loans up to and above Rs 30 lakh, respectively.

A senior bank executive said given the emerging interest rate environment, the bank did not want to offer a fixed rate for two years. However, the 8 per cent fixed rate will continue for the first year.

The product was taken off the company’s website today. The sudden withdrawal surprised many. A direct selling agent who has submitted applications under the scheme said, “With Axis Bank suddenly withdrawing its teaser rate scheme, I am approaching other banks.”

Axis was one of the last banks to offer such a scheme. Last year, a number of banks, led by the country’s largest, State Bank of India, launched these products.

A senior SBI executive said while cost pressures were emerging, the bank would fulfill its commitment and continue to the offer the product till the end of March.

Sanctions under Housing Development Finance Corporation’s teaser rate scheme close on February 13. Disbursements, however, will continue till March 31. One of the advantages of Axis Bank’s product was that there was no prepayment penalty. “After two years, if the bank’s rates go up sharply, customers can shift to other banks without any penalty,” said an industry source.

Other banks charge around 2 per cent of the outstanding amount as pre-payment penalty. The Reserve Bank of India RBI move to raise the CRR by 75 basis points is expected to suck out around Rs 36,000 crore from the system. This, along with advance tax outflows in mid-March, is expected to reduce liquidity. As a result, banks are expected to review teaser loan schemes in March.