The earlier SBI chairman OP Bhatt had vehemently argued with RBI that his special loan scheme was not teaser loan and refused to give into demand to call it off. But within a month of his retirement in March end, the new management headed by Mr Chaudhuri decided to discontinue the scheme
Mumbai: State Bank of India (SBI), the country's largest lender on Tuesday said it has no plan to relaunch the dual/fixed rate home loan products, popularly called teaser loans, as was done by its private sector rival ICICI Bank last week, reports PTI.
"Right now there is no plan for that," SBI chairman Pratip Chaudhuri told reporters on the sidelines of a Ficci-IBA conference here.
On SBI's recent experience with the regulator, when the bank had argued that its dual rate loan was not a risky teaser loan as was being made out by the RBI, Mr Chaudhuri said, "the loan that we had earlier, in spite of lots of our persuasion with the Reserve Bank of India (RBI), they called it a teaser loan."
He added, "Today our home loan products are widely accepted and there is no shortage of demand for them. Our home loan portfolio is growing in the same way as was earlier.
Borrowers are aware that these are the times of floating rates and that the rates will go up sometime and then will go down."
Mr Chaudhuri said, "Even our competitors have launched the fixed rate product only for two to three years after which the loan becomes floating. As of now, we have no plans to launch a dual rate loan."
On 19th August, the second largest lender ICICI Bank had launched two new home loan products with interest rates fixed for one and two years and floating from the third year.
In the one-year fixed rate home loan scheme, the bank is offering loans up to Rs 25lakh at 10.50%, Rs25-75 lakh at 11% and those above Rs75 lakh at 11.50%.
Under the two-year fixed rate scheme, loans up to Rs25 lakh are priced at 10.75%, Rs25-Rs75 lakh at 11.25% and those over Rs75 lakh at 11.75%.
The floating rate from the third year will be linked to the base rate plus margin decided at the time of the sanction.
Such fixed-cum-floating housing loan schemes disappeared from the market this April after the RBI expressed concerns that these products may affect banks' asset quality.
The last one to call off such loans was SBI in late April soon after the current chairman took over.
The earlier SBI chairman OP Bhatt had vehemently argued with RBI that his special loan scheme was not teaser loan and refused to give into demand to call it off. But within a month of his retirement in March end, the new management headed by Mr Chaudhuri decided to discontinue the scheme.
SBI launched the teaser loan scheme in late 2009, when it was sitting over a cash pile of nearly Rs1 trillion, following the slowdown in the credit market amid ripple effects of the global financial meltdown of September 2008.
Soon, other banks followed suit as SBI dislodged HDFC as the largest home loan lender.
The central bank defines teaser loan schemes as those offered at low interest in the first few years, after which they are reset at higher rates.
On whether SBI plan not to relaunch the scheme is because of the regulatory concerns, Mr Chaudhuri said, "It is much simpler for the sales force to explain. We would like to keep the whole offering simpler."
He said the bank is sitting on a cash surplus of Rs30,000 crore and added that even at 20% credit growth, it can hold out this year, in case the government does not give permission to SBI's rights issue-expected to be Rs21,000 crore-during FY11-12.
Team Anna claimed that three issues still remain the sticking point as there were no agreement on the citizen's charter, inclusion of lower bureaucracy and setting up of Lokayukta in state through Lokpal
New Delhi: Social activist Anna Hazare is awaiting a written assurance from the government on the Lokpal Bill issue before ending his indefinite fast which entered the ninth day as his team said that developments unfolding today will be 'crucial', reports PTI.
The government and Team Anna held discussions for the first time last night and both sides agreed on a variety of issues leading to hopes of Mr Hazare ending the fast.
"Anna will read every word of the written agreement when it comes. Rest assured he is not going to take any chances at all. Today is crucial. His health as well as government giving a written commitment for tabling and passing in current session the Jan Lokpal is important," activist Kiran Bedi said.
Team Anna claimed that three issues still remain the sticking point as there were no agreement on the citizen's charter, inclusion of lower bureaucracy and setting up of Lokayukta in state through Lokpal.
There were indications that government might consider bringing the prime minister under the ambit of the anti-corruption ombudsman while differences persisted on other key issues during the inconclusive talks.
Last night's negotiations capped a day of fast-moving developments which saw prime minister Manmohan Singh appoint finance minister Pranab Mukherjee as the negotiator and immediately thereafter three members of Mr Hazare's team met him.
After three hours of talks, Team Anna said they made it clear to the government that the official Lokpal Bill should either be withdrawn or allowed to lapse and the Jan Lokpal Bill should be introduced and passed in the current session of Parliament by extending it, if necessary.
Meanwhile, Mr Hazare refused to be put on an intravenous drip despite doctors advising him to do so once again this morning, his close associate said.
Hazare yesterday disregarded doctor's advice to be put on intravenous (IV) drip and refused to take any medicine while warning the government against trying to forcibly evict him from the protest site of Ramlila Maidan here.
Team Anna has also rejected the prime minister's offer to send the Jan Lokpal Bill to the Parliamentary Standing Committee. "We have told them that it is not acceptable," Arvind Kejriwal, a top associate of Mr Hazare, said yesterday.
The talks followed the prime minister's letter to Mr Hazare in which he appealed to him to end the fast saying he and the government have 'abiding interest' in his health.
The prime minister's initiative saw law minister Salman Khurshid meeting Mr Kejriwal at a flat near East Delhi MP Sandeep Dikshit's residence where it was conveyed that Mr Mukherjee would negotiate with Mr Hazare's team.
Mr Kejriwal said that during the discussions with Mr Mukherjee it was conveyed that the basic principles of the Jan Lokpal Bill should be preserved and the law ministry should vet the draft in two-three days and get back to them.
"The Congress, UPA and the government should give a commitment that it will support the Bill and get it passed in this session itself, if required by extending it by two-three days," Mr Kejriwal said.
Prashant Bhushan, another Hazare associate, said the government appeared to have no objection to bringing the prime minister under the ambit of Lokpal, while on judges, the government promised they will bring a separate law and 'show it to us'.
The civil society representatives claimed government has agreed that the anti-corruption wing of Central Bureau of Investigation (CBI) will be under Lokpal and the corrupt acts of members of Parliament will be covered by the ombudsman even if it was in pursuance of a vote cast or speech made in Parliament which is now protected under Article 105.
There is a feeling among bankers that the acquisition of MFIs could strengthen the functioning of these institutions and enable the much-needed funds infusion. But any such takeover would first require an assessment of the portfolio of these MFIs
The proposed Microfinance Institutions (Development and Regulation) Bill, 2011 states that its aim is, "to provide access to financial services for the rural and urban poor and certain disadvantaged sections of the people by promoting the growth and development of microfinance institutions as extended arms of banks and financial institutions and for the regulation of microfinance institutions and for matters connected therewith and incidental thereto."i
If microfinance institutions (MFIs) are to be extended arms of the banking sector, then why not consider the idea of banks acquiring MFIs? This is especially relevant in the present Indian context and many stakeholders appear to be in favour of such a swayamvar.
Some bankers feel that this is the only way out as banks would be able to infuse capital, establish better governance, ensure that systems/processes function on the ground, and most importantly that banks will also be able to satisfy their mandate of financial inclusion. However, they also think that the Reserve Bank of India (RBI) must take the initiative and prepare the stage for the bank-MFI swayamvar to take place. One of them remarked emphatically that, "this is the only way out of the present mess, as banks will then feel that they are in control of the situation in terms of growth plans, avoiding multiple-lending, over-indebtedness and the like. And, over time, this arrangement will also enable banks to deliver savings and risk management services through well-governed MFIs as business correspondents."
In my opinion, while this is a useful suggestion, there are problems here, including assessment of portfolio, merging of corporate cultures and the like, that need to be addressed. These would need to be addressed properly and banks would certainly like (and have) to be sure that—while there may be some risk in the microfinance portfolio—the portfolio does not have "lemons" (defined as non-performing assets) in significant measure.
The aspect of ghost clients, multiple-lending, greening of loans, use of third party agents and similar aspects are a cause for worry and these suggest that the portfolio of MFIs may not be as sound as portrayed to be. The Andhra Pradesh crisis and its impact have compounded these problems manifold, and what you have is a portfolio under great stress. Therefore, a whole lot of things need to be carefully ascertained before the match-making gets underway and is successful.
As one banker cautioned, "While the idea is indeed attractive and could be a practical way out of the present mess, the issue of corporate cultures is a critical one and should not be underestimated. Hence, acquiring banks must therefore be wary of the fact that managing the acquired MFIs will not be the same as managing banks and that there would be important differences in systems and the way things happen on a day-to-day basis. If the acquiring banks try to foist their corporate culture on MFIs, the acquisitions could fail. So, while acquisition of MFIs is a good idea in today's crisis-ridden environment, the management of MFIs (post acquisition) will have to be done in a hands-off manner by the banks concerned. This needs to be clearly understood prior to an acquisition and also followed in reality, post acquisition."
Commenting on the likely success of such acquisitions, an industry stakeholder remarked, "I am not sure if the acquisition will really work, as wherever such acquisitions have happened, the acquirers tend to force their systems and practices on the acquired institutions. This may not work and also, staff turnover could increase-in fact, it is already high in microfinance and that may prevent the new entity from settling down. I am most worried about how the clients would view such an event and the new entity and from my little experience; I think that they may not be as free with a banking institution as with a local MFI."
As a retired senior management executive of a public sector bank summed up the merit of this idea beautifully, "This is a very useful idea, but it should be operationalised carefully. Banks that have worked closely with specific MFIs should consider acquiring them. The rationale for this is that they would know the strengths and weaknesses of the concerned MFI and hence, would be able to manage the entity better, post the acquisition. The RBI must look at the large (NBFCs and other) MFIs that could be acquired, call for a meeting with them and get their concurrence before giving the go-ahead. If this happens, it would be one of the best things for microfinance as the industry will grow in a healthy manner because of better governance and higher transparency in banks, which I'm certain will rub off on the acquired NBFC MFIs."
The cautionary notes apart, what would be the advantages if banks were to acquire MFIs?
As evident, the initial reactions to the idea of banks acquiring MFIs have been positive. In my opinion, if some of the challenges mentioned in this connection are addressed suitably, the idea is workable in the context of the following outcomes:
(a) Post acquisition, MFIs should become more stable and mature financial intermediaries; and
(b) At the same time, the MFIs must retain their local charm and grassroots approach, which affords them considerable flexibility and scope for innovation.
Without question, enabling banks to acquire MFIs is worth exploring and could turn out to be the much-sought-after solution for the current problems of the microfinance industry… I sincerely hope that the Union Ministry of Finance and the RBI will look at this seriously, as a possible way out of the crisis.
iSource: The Micro Finance Institutions (Development and Regulation) Bill, 2011. (As of 20 June 2011)
(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments.)