‘Certain loose practices were developing in the housing sector’

Reserve Bank of India governor D SUBBARAO moved swiftly to curtail some malpractices in the housing loan segment in the monetary policy review on Tuesday. In an interview to GEORGE MATHEW, he spoke about the home loan segment, capital flows, GDP growth, asset price build-up and the microfinance sector. Excerpts:

Why did you tighten the home loan norms? Is there any problem in the segment?

We have been watching the situation. We noticed that certain loose practices were developing in the housing sector. We wanted to curb that.... that’s the motivation behind the move. Some slackness in the loans to value ratio and whether teaser rates go through the same stringent valuation that they should be going through. It’s not that we have actually seen so much of a problem. We have seen factors that could potentially lead to a problem.

There has been an asset price build-up. Do you think there’s a need to curtail flows to restrict price rise?

There has been an asset price build-up. Gold is at all-time high and equity prices are high. Moderating capital flows depends on a number of factors, not just asset prices. The exchange rate, currency, current account deficit. So far this year, the flows have been in line with current account deficit. Should there be flows far out of line with current account deficit, we might need to intervene.

Microfinance companies are charging very high interest rates. Why is the RBI not doing anything to bring them down?

The RBI regulates only one segment of the MFI sector, which is the non-banking finance companies involved in the microfinance sector. There’s no such separate categorisation of NBFC-MFIs. There are 37 NBFCs which are MFIs and regulated by us and none of them are deposit taking. Only about 13 out of 37 NBFCs are systematically important with business of over Rs 100 crore. The segment of the MFI sector that comes under RBI regulation is small but in terms of total lending, it might be significantly higher. Now there are questions about regulating interest rates and our stance is to move away from regulating interest rates. We can’t now turn towards this and start regulating interest rates. In any case, this is a question that Malegam committee will go through and we will take a view after the report is available.

Do you think capital flows are disruptive to warrant any intervention?

The flows so...