Mumbai, Jan 19:
The RBI on Monday said the spread (or the mark up over the base rate) charged to an existing borrower by banks should not be increased except on account of deterioration in the credit risk profile of the customer or change in the tenor premium.
What this means is that if the credit rating of an existing borrowing unit deteriorates then at the time of the annual renewal of loan limit , the spread charged over the base rate will be increased. Otherwise the interest rate remains unchanged.
In its additional guidelines on ‘Interest Rates on Advances’, the RBI also allowed banks to review the Base Rate methodology after three years from the date of its finalization instead of the current periodicity of five years. This is to provide banks greater operational flexibility to them.
Base rate is the minimum interest rate below which a bank will not lend. The Base Rate system was introduced with effect from July 1, 2010 to enhance transparency in lending rates of banks and enable better assessment of transmission of monetary policy.
Any decision regarding change in spread on account of change in credit risk profile should be supported by a full-fledged risk profile review of the customer, the RBI said.
The change in tenor premium should not be borrower specific or loan class specific. In other words, the change in tenor premium will be uniform for all types of loans for a given residual tenor.
Banks, according to the RBI, should have a Board approved policy delineating the components of spread (mark up over the base rate) charged to a customer. Further, it should be ensured that any price differentiation is consistent with bank’s credit pricing policy.
Bank’s internal pricing policy must spell out the rationale for, and range of, the spread in the case of a given category of borrower, as also, the delegation of powers in respect of loan pricing. The rationale of the policy should be available for supervisory review.
My Comments are as follows
Banks are free to decide their base rate or Prime Lending rate keeping in view cost of deposit and expenses and they have been enjoying this freedom for last two decades. They are free to give concession in interest rate, processing charges and what not to any borrower as per their whims and fancies, not as per the merit or demerit of the case .
Unfortunately majority of public sector banks during last four years fixed based rate totally in arbitrary manner , more often than not to please ministers. They never bothered what is their cost of deposit and what is other burden on cost of fund before fixing it. Earlier too, i.e. in the year 2010 ,RBI had directed banks to revise their base rate at least once in a quarter . But banks use to change base rate only to please Finance Minister or at pressure of GOI. Board of directors normally blind agree what the CMD of a bank desire And CMD of a bank like what a FM like him to do. This flattery culture has damaged the bank.
Even after giving all concessions , they are unable to safeguard banks fund and they are unable to increase profit of the bank whereas private banks are using their freedom for the growth of banks credit and bank's profit. On the contrary top officials of public sector banks use power of interest concessions to please the borrower who can please senior bosses by gifts in cash or in kind.
It will not be an exaggeration and incorrect to say that majority of borrowers who are given various concessions at the cost of bank's interest are now considered as Non Performers and loans given to such borrowers has gone bad or are in category of stressed assets
Unfortunately majority of public sector banks during last four years fixed based rate totally in arbitrary manner , more often than not to please ministers. They never bothered what is their cost of deposit and what is other burden on cost of fund before fixing it. Earlier too, i.e. in the year 2010 ,RBI had directed banks to revise their base rate at least once in a quarter . But banks use to change base rate only to please Finance Minister or at pressure of GOI. Board of directors normally blind agree what the CMD of a bank desire And CMD of a bank like what a FM like him to do. This flattery culture has damaged the bank.
Even after giving all concessions , they are unable to safeguard banks fund and they are unable to increase profit of the bank whereas private banks are using their freedom for the growth of banks credit and bank's profit. On the contrary top officials of public sector banks use power of interest concessions to please the borrower who can please senior bosses by gifts in cash or in kind.
It will not be an exaggeration and incorrect to say that majority of borrowers who are given various concessions at the cost of bank's interest are now considered as Non Performers and loans given to such borrowers has gone bad or are in category of stressed assets
No comments:
Post a Comment