'RBI hasn't understood SBI's step-up loan plans'

MUMBAI: State Bank of India's outgoing chairman Om Prakash Bhatt has voiced disapproval over the central bank's moves to discourage step-up rates on home loans and to consider deregulation of interest on savings account. Bhatt, whose term comes to an end on Thursday, also said that the bank would take a decision on extending its special rate home loans, also referred to as teaser rates, the same day.Addressing the media in Mumbai on Wednesday, Bhatt said that RBI had not understood SBI's special home loan product and none of the charges raised by the central bank on teaser loans apply to SBI's home special rate loans and the bank has, therefore, not made any additional provisions. Last year, RBI made it more expensive for banks to extend step-up loans where interest rates are low in the first year and rise in subsequent years on the grounds that these were risky and not entirely transparent.Articulating the bank's stance on savings ratederegulation, Bhatt said that the bank had internally discussed the issue andwas not in favour of savings rate deregulation as it would increase volatilityand hurt state-owned banks. Last month, RBI governor D Subbarao had said, "Thereis a view that we should deregulate the interest rate on savings bank accounts.We are examining the pros and cons of doing that and will shortly put out aDiscussion Paper for eliciting feedback."But SBI, which represents30% of the country's saving account deposits, is against deregulation. "Ifinterest rates are deregulated, banks will offer higher interest rates only withconditionalities on large deposits. The small man will not benefit," said Bhatt."The savings bank product is a very unique product and no other country has thisproduct," said Bhatt, adding that there were over 400 million earning Rs 50 aday and these people did not have access to fixed deposits or recurringdeposits. Unlike in other countries, depositors in India are allowed to usetheir savings accounts as checking account for all transactions and at the sametime earn interest. Bhatt said that because of the substantial cash flows fromcurrent and savings account, banks have been able to meet the long-term fundingrequirement of the Indian economy.SBI's views on both issues aresignificant as RBI is expected to take a final view on both. SBI's stance onspecial rate loans has prompted mortgage companies like LIC Housing Finance tomake a representation to their regulator, the National Housing Bank, on higherprovisioning. Most other lenders have discontinued loans with step-up interestrates but feel that any stand taken by RBI on this would apply to all and wouldmean that they should be allowed to write back higher provisioning that theyhave made on step-up loans.SBI has, however, made a small change inits special home loan scheme after RBI's new rules. Instead of keeping interestrates fixed for the first year, the revised scheme offered floating rate loans."The regulator said that we need not make any additional provisions," saidBhatt. Addressing the media on the completion of his term, Bhatt said thatmerging of the associate banks and raising additional capital for SBI was partof the bank's unfinished agenda.