SBI chief pitches for level playing field between banks, HFCs

State Bank of India chief on Saturday noted that there should not be any regulatory arbitrage to ensure level playing field between banks and housing finance companies (HFCs) with regards to interest rates.

Arundhati Bhattacharya, Chairman of State Bank of India said that being in the same operating business, it must be level playing for consumers to get the best lender.

"If you ask me, there shouldn't 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 that you are operating there should be level playing so that the most efficient of them do the best job," she told reporters on the sidelines of a banking and real estate seminar organised by Credai, an association of real estate industry.

Bhattacharya called for doing away with arbitrage where banks are barred from lending below base rate while HFCs are permitted to lend below their prime lending rates (PLR). HFCs do not have a base rate concept. 

She added that, "As an HFC if they get licences, obviously they do have an advantage to lend sub-PLR."

Since banks are restricted from lending below base rate it ensures that a reduction in rates is uniformly passed on to both existing and new borrowers. However, HFCs can offer attractive rates to new customers even without reducing their lending rates and existing borrowers fail to get the benefit. 

However, Sriram Kalyanaraman, MD and CEO of National Housing Bank, the regulatory body of HFCs did not agree with Bhattacharya. "The cost of funds for HFCs is far more than that of a bank and therefore there is no case for a regulatory arbitrage… Banks have CASA (current and savings account, which are low cost deposits) and therefore have lower costs," he said.

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