Arundhati Bhattacharya, chairman of the country’s largest lender State Bank of India, on Saturday said there is some amount of regulatory arbitrage when it comes to the lending rates of banks and housing finance companies (HFCs) and this is not good for a level playing field.
“There is some amount of regulatory arbitrage. But then the regulator says they (HFCs) also have to get their resources at higher costs than the banks. There are pros and cons for both of them,” Bhattacharya stated. “How to exactly equate it out so that everybody is on a level-playing field is difficult to sort of opine,” she added. The SBI chairman was speaking on the sidelines of the Credai Bankcon 2015 summit in Mumbai.
HFCs that are regulated by the National Housing Bank (NHB) are permitted to lend below the prime lending rates (PLR), whereas banks regulated by the Reserve Bank of India (RBI) cannot lend below the base rate.
Bhattacharya said HFCs have an advantage as they can lend below the PLR. “On the other side, what the regulators say is they do not have access to lower cost deposits,” she pointed out. Given the fact that banks have access to a customer deposits, their cost of funds is also comparatively lower than housing finance companies.
Bhattacharya asserted any regulatory arbitrage is not good for a level playing field. “I don’t think there should be any regulatory arbitrage. Regulatory arbitrage always makes for an ‘un-level’. That’s not a level-playing field. And if you have a particular area in which you are playing, obviously it is important to have a level-playing field so that the most efficient of them does the best job,” she asserted.
Sriram Kalyanaraman, MD and CEO of National Housing Bank (NHB), pointed out that HFCs do not have the cost benefits that a bank has due to their CASA base.
“I don’t think they have the cost advantage of the bank,” he added.
Bhattacharya also pitched for the need of the controversial ‘teaser’ loans in the home loan segment as it helps borrowers reduce their interest burden.
“I still believe that there is a place for teaser loans, mainly because when people take loans, they need some breathing space in the initial days and as time progresses, the EMIs become easier (to pay) as salaries go up,” Bhattacharya said.