MUMBAI: Country's largest bank, State Bank of India (SBI) has sought approval from the Reserve Bank of India (RBI) to provide home loans below base rate in order to kick start the economy. SBI has pegged its base rate- the floor rate below which the bank does not lend - at 9.70 per cent, one of the lowest among all lenders.
This was suggested by SBI chairman Arundhati Bhattacharya speaking at 2nd SBI's Banking and Economic Conclave in a tet-e-tet with the RBI governor Raghuram Rajan. She suggested that the SBI could be allowed to lend below base for a limited period for ready stock of houses. SBI is the largest provider of home loans which almost 20 per cent market share.
Responding to her suggestion, the governor said, "I never say no to your ideas. We will have to look into it."
She argued on the grounds that SBI's fixed rate home loan scheme of 8 per cent in first year and 8.5 per cent for the next two years in 2008, when the Indian economy was hit by the global crisis - has helped revive the Indian economy- something which was acknowledged by thefinance ministry a few years later in Economic Survey. However, the RBI has clamped down the scheme terming it as a teaser loans which are aimed at attracting customers who may not have ability to pay higher rates when interest rate moves up.
Arundhati Bhattacharya said that SBI's 8 per cent fixed rate home loans can't be terms teaser loan because nowhere in SBI assessment the customer's ability to repay comprised. "The rational for this suggestion that there is a stock of unsold house and in some cases it is as high as four years, some of it could be under construction. The moment real estate takes off there is demand for steel, cement and labour. So overall it provides a kicker to get the wheels rolling," she said.
This was suggested by SBI chairman Arundhati Bhattacharya speaking at 2nd SBI's Banking and Economic Conclave in a tet-e-tet with the RBI governor Raghuram Rajan. She suggested that the SBI could be allowed to lend below base for a limited period for ready stock of houses. SBI is the largest provider of home loans which almost 20 per cent market share.
Responding to her suggestion, the governor said, "I never say no to your ideas. We will have to look into it."
She argued on the grounds that SBI's fixed rate home loan scheme of 8 per cent in first year and 8.5 per cent for the next two years in 2008, when the Indian economy was hit by the global crisis - has helped revive the Indian economy- something which was acknowledged by thefinance ministry a few years later in Economic Survey. However, the RBI has clamped down the scheme terming it as a teaser loans which are aimed at attracting customers who may not have ability to pay higher rates when interest rate moves up.
Arundhati Bhattacharya said that SBI's 8 per cent fixed rate home loans can't be terms teaser loan because nowhere in SBI assessment the customer's ability to repay comprised. "The rational for this suggestion that there is a stock of unsold house and in some cases it is as high as four years, some of it could be under construction. The moment real estate takes off there is demand for steel, cement and labour. So overall it provides a kicker to get the wheels rolling," she said.
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