Outgoing chairman of State Bank India, O P Bhatt, continues to defend the bank’s home loan product against the central bank’s clear lack of affection for it.
“Obviously, they (Reserve Bank of India) have not understood our product,” Bhatt said on Wednesday. He retires tomorrow after a five-year stint as chairman and a four-decade association with SBI.
RBI feels SBI’s special home loans are similar to the sub-prime loans lent in the US in the run-up to the 2008 global financial meltdown. Bhatt said this view is beyond logic, as his offering is sold to those who are “absolutely credit-worthy”.
However, he was quick to add, this was not defiance but the view of a bank that is the industry leader, with a quarter of the entire banking business under its fold.
“Being the industry thought-leader and market leader, it is the duty of SBI to articulate our views to the regulator. This has to be done in the interest of intellectual honesty and public discourse,” he said.
He also said there was no concern of any default in such loans. “We have given home loans only on the basis of an individual’s income. So, how do these products become sub-prime? We also make sure the borrower knows how his monthly instalments will be calculated and how they will change with course of time. So, it is totally transparent and there is no element of surprise,” Bhatt said.
The special home loan scheme charges borrowers at a discounted rate in the initial years and returns to a normal floating rate thereafter.
RBI says such loans are undesirable, since some borrowers may find it difficult to service these once the normal interest rate, which is higher than the rate applicable in the initial years, becomes effective.
To discourage such loans, RBI raised the provisioning requirement five-fold for these, to two per cent.
SBI had requested RBI to waive the additional provisioning, as it believes the product should not qualify as a teaser-rate one. “We have explained (this) to RBI. However, if they (RBI) ask us to provide for these home loans, we may have to set aside Rs 200-300 crore additionally,” he said.
Of his tenure, Bhatt said there were some unrealised goals. “I would have loved to merge all the associates (associate banks of SBI, with itself) but that has not happened. But I am happy the process has started,” he said.
