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MRTPC blocks bankers' move to fix lending rate floor — Notices being issued to IBA, Govt & RBI

Richa Mishra
Sarbajeet K. Sen

New Delhi , Dec. 8

THE efforts of Indian banks to arrive at a loose consensus on industry-wide floor levels on lending rates could come to an abrupt halt with the Monopolies and Restrictive Trade Practices Commission (MRTPC) holding that any such move could amount to `restrictive trade practice' under the present laws on unfair trade practices.

In what could come as a relief to borrowers who are sniffing around for sharper interest rates, the MRTPC on Tuesday ordered that notices be issued to the Indian Banks' Association (IBA) along with the Governor, Reserve Bank of India, and the Secretary, (Banking), Ministry of Finance, to ascertain the truth behind reports that banks are attempting to fix floor rates for lending.

"If such reports (of fixing of floor rates for lending) are true, the matter would need to be enquired into with a view to examining if the practice being adopted by the collective action of these bankers would amount to adoption of restrictive trade practices as defined under Section 2(o) of the MRTP Act, 1969, and/or would be a registerable agreement relating to restrictive trade practice under Section 33 of the Act," the MRTPC has said.

The Commission has said the preliminary notices are being issued only to ascertain the veracity of the reports and that it was an initial step towards issuing "a formal notice of enquiry" on the matter.

A two-judge Bench comprising the Commission's Chairman, Mr Justice B.K. Behl, and Member, Mr M.M. Sardana, - has directed the Government, RBI and the IBA to respond to the notice within six weeks. The next hearing on the matter has been fixed for February 1, 2006.

Recent reports suggest that banks, led by the public sector lenders, have been trying to reach a consensus on having floor rates on lending to ensure that cut-throat competition does not result in lending rates being pushed to levels lower than that arrived at between them.

The reports said leading banks have held formal meetings for fixing floor rates for loans of different tenors. The leadership for organising the meeting had apparently been taken by the State Bank of India. Bankers said discussions on the issue have also been held under the banner of the IBA.

However, though banks have been voicing fears on the adverse impact of the intense competition to woo clients of other banks by offering lower rates, several bankers had told Business Line that there was no agreement on floor rates.

Related Stories:
Banks on a re-think
Is multiple floor rates the remedy?
A new turn in bank lending
`Review prime lending rate system'

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