The banks are centralized and are regulated and to an extent controlled by the government, there is a central authority in control that runs the business of giving loans to earn profits from the interest upon repayment.

If you understand BTC well enough, how can you think it would replace such a system. There is no central authority in control, so who's going to issue loans or mortgages. In the BTC network you are your own bank, so if you decide to create a system were you loan out your own coins for interest, it is up to you.