One reason why there is anger at the Reserve Bank of India today is that most people who had taken housing loans at bargain basement rates of interest (as low as 7.25 per cent) did not work out the likelihood of such low rates of interest continuing for the life of the loans (typically, 15 years). In other words, they did not assess risk. If they had, they might have decided that the cost of paying an extra percentage point on a fixed (as against floating) interest loan was worth the cost, in order to hedge against interest rates climbing in the future. After all, it would be unreasonable to expect that an unusual circumstance (7.25 per cent interest) would prevail for 15 long years.
The flip side of that coin was that pensioners who had relied on bank interest rates staying high (which had been the long-term experience) were shocked as their calculations on monthly interest payment went awry, as interest rates crashed early in this decade. They complained, but the fault was theirs for not assessing risk and hedging with a diversified asset portfolio.
We should not be surprised at such cupidity; it has been in evidence in other contexts too. As with investment in stocks, when people assumed that share prices that had been climbing would continue to climb, and that handsome returns on the stock market were a one-way bet. The dismay when stock prices fell sharply, as they did three times in the first reform decade, finally drove home the lesson to the middle class that there is risk in the stock market. People are wiser now and give more of their money to professional fund managers rather than taking punting decisions themselves.
But why come down hard on lay individuals who are not conscious of the rules of the financial world? Companies managed by professionals have been no wiser in the past. The crisis that many companies found themselves in, in the wake of the financial squeeze of 1995-96, was because many of them had embarked on long-gestation projects, using short-term loans, and assumed loan roll-overs.
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