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Probably for the first time in decades, the finance ministry is not quite in sync with two of the important regulators–the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Some argue that this is a consequence of the Financial Stability Development Council (FSDC) Bill, which clipped the powers of all the independent regulators and gave the finance ministry the power to settle squabbles between the regulators. At the time, RBI governor D Subbarao went public with his opposition to the government’s move, but was duly ignored. Funnily enough, that squabble—that gave FSDC a statutory life—was between SEBI and the Insurance Regulatory Development Authority (IRDA), with the RBI governor as head of the High Level Coordination Committee (HLCC) of regulators failing to prevent them “quarreling like petulant children”.
Meanwhile, the RBI is facing much embarrassment over the State Bank of India’s (SBI) teaser rates on home loans. Teaser rates worry bankers because they hark back to all that was wrong and led to the financial crisis in the US. They lure people to avail of loans at a discounted 8% and expose them to hardship when rates rise after the discount period ends.
But with SBI—the biggest lender—offering teaser rates, other banks and mortgage financiers have no option but to follow, in order to remain in business. Even business leaders such as HDFC Chairman Deepak Parekh have publicly expressed their unhappiness over teaser rates. But the SBI chairman is unfazed.
Bankers were particularly astonished by SBI chairman OP Bhatt’s vociferous defence of teaser rates at the recent credit policy meeting, when the RBI increased the provisioning for real estate loans and expressed concern over teaser loans. We learn that Mr Bhatt repeatedly pointed out that Ms Shyamala Gopinath, who is on the SBI board of directors was a party to its decision to continue with teaser rates. Embarrassed, Ms Gopinath tried to prevaricate, but Mr Bhatt insisted that she had definitely attended the meeting at which it was decided to extender teaser loans. Mr Bhatt’s “boldness” has caused a huge ripple among bankers, because this is the first time that a banker has been openly defiant on RBI policy. Normally, bankers are supposed to understand hints and nuanced under-statements and are expected to make haste and comply. Mr Bhatt has sent a signal that he is not in a hurry to fall in line. It is a situation that other bankers are watching with shock and awe.
Interestingly, the RBI has been helplessly expressing apprehension over teaser loans since February 2010. At a Banking Conclave (Bancon) in January, former deputy governor Usha Thorat had said, “In the area of housing loans, teaser rates are increasingly being offered, which is a cause for concern. I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account the repaying capacity of the borrowers when the rates become normal.”