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RBI gets tough with banks — Lending rate disclosure to be made mandatory

Rajalakshmi Menon

MUMBAI, July 12

THE Reserve Bank of India has decided to make it mandatory for all commercial banks to disclose their maximum and minimum lending rates, including sub-PLRs, on a fortnightly basis.

In its recent credit policy, RBI had told banks to provide information on maximum and minimum lending rates charged to borrowers. The RBI had also indicated that it would put this information on its Web site.

However, according to RBI sources, no bank has so far provided these details to RBI. The central bank has now decided to make it mandatory for banks to comply with the credit policy announcement.

RBI is expected to come out with a circular shortly, bank officials said.

Banks will have to provide these rates to RBI under the returns that are filed each fortnight. Besides this, RBI is also seeking the total volumes of business transacted under both the maximum and the minimum lending rates. However, this disclosure would not be made mandatory, officials said.

Fortnightly returns are filed by banks with RBI as per section 42 (2) of the RBI Act whereby banks have to disclose their net demand and time liabilities for maintaining their liquidity returns such as CRR and SLR.

Banks have been showing a marked reluctance to reveal these rates though the recent monetary and credit policy had clearly told banks to provide information on their maximum and minimum rates charged to borrowers.

Recently, several banks had conveyed to RBI that they were not too keen to reveal their minimum rates under sub-PLR lendings to RBI. By making it mandatory, RBI is making it clear that banks will have to comply with the credit policy announcements.

RBI maintains that the practice of banks disclosing their maximum and minimum rates is not only a move that is aimed at greater transparency but is also in line with international best practices.

Bankers, on the other hand, fear that once sub-PLR rates are made public, good clients may be weaned away by other banks offering lower rates. "We will not only lose our best customers, but other clients may also start demanding rates that we offer to our top corporates,'' said one senior banker.

In its credit policy, RBI had said that spreads above PLR of some banks are substantial and in the present interest rate environment, it is not reasonable to keep very high rates over PLR. Banks also had to announce the maximum spread over PLR to the public, along with the announcement of their PLR.

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