Lenders wary of sharing client credit info, fear losing competitive edge

Comments 0
SummaryAlthough Reserve Bank of India has directed banks to share information regarding their credit exposure, banks are wary of doign so, fearing they may lose their competitive edge.

Although Reserve Bank of India (RBI) has directed banks to share information regarding their credit exposure, banks are wary of doign so, fearing they may lose their competitive edge.

“I don't want my competitors to know the kind of exposure I have to a certain borrowers. Rates offered to customers are where banks compete. If my competitors know the rate I offer, than I can potentially lose a customer,” said a senior official of a leading public sector bank. The official did agree that RBI decision to improve transparency between lenders was in the right direction.

With lenders not fully on board, the banking regulator's move to improve transparency among banks may not generate expected results, said an industry watcher. “We are still not clear about the extent to which this information sharing will happen. If we can ensure this would not turn disadvantageous to banks, then it can be a good way to stop bad borrowers who go to multiple lenders,” said the executive director at another public sector bank.

In second quarter monetary policy review announced on October 30, RBI had directed lenders to put in place a system through which information regarding credit exposure, derivative and unhedged foreign currency exposure may be shared among each other. The move was aimed at reducing the risk posed by non-performing assets and bad borrowers who approach multiple banks at the same time.

“Banks should strictly adhere to the instructions regarding sharing of information relating to credit, derivatives and unhedged foreign currency exposures among themselves and put in place an effective mechanism for information sharing by December end. Banks would now be able to sanction fresh loans, ad-hoc loans, renewal of loans to new, existing borrowers from January 2013, only after sharing necessary information,” RBI said in policy document.

Non-adherence to RBI direction would be viewed seriously and liable to action, including imposition of penalty, RBI had said.

In the past, Indian Banks' Association (IBA) had sent out a similar circular to all bankers, urging them to be more transparent in their lending practices, especially to corporate borrowers. However, bankers had not been very enthusiastic, said a senior official of the association.

Ads by Google

More from Money & Funds

Reader´s Comments
| Post a Comment
Please Wait while comments are loading...