The public sector banks may be barred from launchin any fresh teaser loans schemes by the Finance Ministry. The decision to do so is a means by the ministry to stop any kind of rate war erupting amongst the banks leading to rising NPA levels.

Private sector lenders HDFC Bank and ICICI Bank relaunched teaser loan schemes this month following SBI which was the only bank to have continued with the teaser loans after their noemal tenor ended in March.

The ministry is more interested to bar public sector banks from launching teaser loans after July 1 when the base rate is going to come into play.

"There could be unviable lending without keeping in mind the borrower's repayment capacity," said a finance ministry official.

"Some of the schemes under teaser rates have been hugely popular and prompt customers to switch over. Other banks may be forced to come up with similar schemes," he said.

Once the base rate system comes into play, the banks will have to stop this strategy as base rate system is said to be a more transparent mechanism of loan pricing than BPLR.

"We are yet to take a final call. But the credit offtake has been low, and if their is a scope we'll go ahead. A lot depends on the demand from the manufacturing sector, it has shown some signs of recovery," the Chairman of a south based public sector bank said.

"The government is the majority shareholder in all public sector banks and it does have a obligation to protect both the shareholder and the public interest," the finance ministry official said.

The RBI had raised questions over teaser loans earlier also seeking explanation over the implications of these loans and also questioned the repayment capacity of the borrower when the rates would go up after the third year of the loan.