SBI won't make special home-loan provisioning

With the finance ministry’s economic survey backing State Bank of India’s (SBI) controversial yet popular home loan scheme, bank chairman O P Bhatt said SBI will not have to make any special provisioning for such loans.

SBI’s home loans, which offer a lower interest rate in the initial years and rate increases in the later years, were termed teaser loans by the Reserve Bank of India (RBI). RBI is not comfortable with banks offering such products and had increased the standard provisioning requirement for such loans by five times, to two per cent in October.

The increase in provisioning would have put a huge burden on SBI, as most of its home loans were disbursed after February 2009, when the scheme was launched. After RBI increased the provisioning requirement, SBI has tweaked the scheme by offering a fixed discount in the initial years, instead of charging a fixed rate. All floating-rate home loans will be linked to the bank’s base rate.

“The economic survey has said it is far better than I ever said it before. They have sort of reinforced and reiterated what we have said and I am glad that it has happened. We did not ask for an exception, we are totally compliant with what the regulator wants,” Bhatt said today.

Bhatt said SBI’s loans cannot be termed as teaser loans, a view supported by the finance ministry, and hence no extra provisioning is required.

“It is not about compliance, it is about clarity on the nature of the product that RBI labelled teaser loans. The government has called it terraced loans. According to the definition by RBI, we do not have a single teaser loan. In our opinion, we will not have to make any special provision,” Bhatt said.

On interest rates, the SBI chairman said interest rates are expected to go up, but not more than 25-50 bps. SBI, which raised its rates last month, is not contemplating a rise in both deposit and lending rates immediately, he said. Bhatt also said the bank was comfortable on liquidity.

“We have three per cent excess SLR currently. We have enough liquidity in SBI, partly because retail deposits grew at a good pace, and partly because we picked up bulk deposits quite early and also because of the response we got on the retail bond issue,” Bhatt said.

On the proposed rights issue, Bhatt said it may happen in the early part of the next financial year.