Make home loan rates transparent

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: Borrowers will be able to anticipate changes to their borrowing rate only when the floating rate on home loans is pegged to an independent benchmarkRising EMI on home loans makes it to the front pages of newspapers regularly. Many of the arguments remind one of the era when loans from large financial institutions were called ‘assistance’. The loan is no longer an act of benevolence by the lender towards the borrower. We need to recognise the rights and responsibilities of the borrower in the contract as well. We have argued in these pages several times that the benchmark for floating-rate home loan cannot be the internal PLR (prime lending rate) of the lender. It is the right of the borrower to be able to expect and anticipate changes to his borrowing rate based on an independent, observable market benchmark. The PLR is determined by the lender and is, therefore, unacceptable as a fair benchmark for floating-rate loans.

That said, in terms of responsibility, the amount of loan has to be decided by the borrower and not the lender. The borrower takes on the responsibility to service the loan out of his income, and needs to take a conscious call about how much he can pay. Unfortunately, most borrowing decisions seem to have been made on the basis of EMI and its impact on consumable surplus for the family, without considering the impact of a floating rate. It is this eagerness to keep EMI unchanged that has led to bizarre recalculation of tenure in the markets, in the light of rising interest rates. Home loan borrowers need to exercise options to pre-pay by liquidating other assets, or take the hit of a higher EMI, rather than clinging to the comfort of an absurd fixed EMI on a floating rate loan.

Uniform accounting standards
The debate about uniform global accounting standards is as old as accounting standards themselves. But the accounting world never came as close to implementing uniform standards as it now has, with IFRS (International Financial Reporting Standards). There is no doubt that in a globalised world uniform accounting norms will enable global comparison of accounting numbers. More importantly, they will enable companies to access markets anywhere in the world with a standardised format for disclosure.
While every accounting body across the world seems to have welcomed the convergence, they are still not clear about how they will deal with modifications. There would be an issue if a modification suggested by the proposed multi-country supervisory board were found unacceptable by a regulator in another country. For example, nothing stops the SEC (Securities Exchange Commission, the stock markets regulator in the US) from rejecting a modification in IFRS, and asking companies to file disclosures in another format. Such differences would prove costly for issuers of capital and negate the purpose of unified global standards. Cultural differences have been the core cause for differences in accounting and disclosure practices. How much countries will be willing to adapt, in the interest of business exigency, is something that has not been well tested. IFRS is perhaps the biggest live test of challenges in cultural convergence and globalisation.

Big-ticket investments in peril
Long-term investment decisions have never been in greater peril. Firm interest rates, lower business confidence, and threats to production facilities from militant locals do not make a great combination for the much-needed increase in industrial investments. The problem is not just about displaced farmers, their rights, their livelihood, and a fair price for their land. It is also about the lack of clarity in policy on how we would enable the setting up of large business enterprises. It is about mid-course changes in action that stall what the world admires as a technological revolution that the Nano represents. Only because the affected party is a large business enterprise, pitted against smaller landowners, it does not make it all right for the former to take on the loss of production and complete derailing of plans. It is also not all right for a business house to be running between governments and land owners, with no clarity on who is the counterparty with the responsibility to honour a contract.

Singur is only one face of this conflict and of the fear that the mighty would trample the weak. If the list of politicians owning land across the country, close to proposed development projects were exposed, we would know how vested interests work. Land acquisition, whether by government or by businesses directly from locals, is complicated not just by displacement that makes it to the front pages, but also by manipulation by vested interests.