RBI governor Raghuram Rajan rules out teaser loan rates

In a question answer session with SBI chairman Arundhati Bhattacharya, Dr Rajan allayed concerns about new payments banks posing any threat to existing banks. Ms Bhattacharya had said that banks feared that the payment banks would poach on their deposits space.

“New payments banks would not pose any competitive threat to the existing banks and these new entities would rather serve as feeder for the universal banks,” Dr Rajan said at the event, where leading bankers were in attendance.

Payments banks, however, could provide competition as far as interest rates are concerned. They are allowed to collect deposits upto Rs 1 lakh and they could give higher rates than banks offer for savings accounts.

To a suggestion from Ms Bhattacharya that home loan (teaser) rates should be brought down for a short period in order to boost demand, Dr Rajan said that he did not want “to create a situation where high prices would rule in the real estate by bringing down interest rates below the base rate. Developers are sitting on plenty of unsold stock.”

The transmission of interest rate cuts is taking place through the markets, said Dr Rajan replying to the complaints about the lag in passing on benefits of rate cuts. He said “credit growth figures are misleading because corporates are tapping the markets for cheaper rates. Compe-tition from the markets is much stronger and banks will lose business.” He suggested that fixed deposit rates should be made floating rates.