Deregulation of savings bank (SB) interest rates will not only boost the rates, but also put the small investors at a disadvantage, compared to bigger depositors, said
O.P. Bhatt , chairman of State Bank of India (
SBI ) on Wednesday.
The graded interest rate system followed by the bank while offering home loans cannot be equated to the sub-prime loans of US, he said in his last press conference before his term comes to a close on Thursday.
There is a proposal lying with the Reserve Bank of India (RBI) for deregulation of savings bank interest rates, which are at present fixed at 3.5 per cent for banks across the board.
"If SB account rates are deregulated, the deposit rates will go up (due to competition).
But it will lead to volatility in rates," Bhatt said.
"The banks may benchmark the savings bank rates to the quantum of deposit, like 0.5 per cent for a deposit of Rs 500 and 3.5 per cent for deposits of above Rs 50,000. My reason supports status quo on the SB account rate," Bhatt added.
On RBI terming the graded interest rates offered by SBI on home loans as Teaser Loans, Bhatt said, "Our home loan products are not similar to those in the US. In the US, they were offered to those without jobs, incomes or assets. This was based on an assumption that the value of the property will go up by five to 10 per cent per annum and the loan could be recovered by selling the property in case they fail to repay the loan." In the US, such loans were offered at a nominal rate of two to three per cent per annum or nil interest charge to borrowers in the initial three to four years, which subsequently went up to eight to 11 per cent. The jobless borrowers were not informed about the process, resulting in a virtual shock for them.
"But we ensured that he (the borrower) has a job and has the repaying capacity by verifying the past tax payment records.
Just reducing their interest burden in the initial years, say from Rs 40 a month to Rs 34 or Rs 32, cannot be called sub-prime," Bhatt argued, stating that this line of argument was explained to the RBI, too.
SBI used to offer home loans at a lower eight per cent rate during the initial three years, which would be benchmarked to the State Bank Lending Rate (SBLR or benchmark lending rate) from the fourth year onwards, mentioning the same in the agreement. He also said that the delinquent loans among home loans were very low.
"However, SBI would abide by the direction of RBI in this regard," Bhatt clarified.
Responding to a query on the wishes he could not see fulfilled during his five year tenure, Bhatt identified these as merger of all associate banks with the SBI, and raising the bank's capital base for ensuring its future growth.
Over the last couple of years, Bhatt has been trying to take forward the Rs 15,000-20,000 crore rights issue, but could not do so. The plan is still resting with the government, for it has to subscribe to its right of about 59 per cent of the issue.
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