“In the interest of customer protection as also meaningful competition, it is necessary to have a greater degree of transparency in regard to actual interest rates for depositors as well as borrowers,” RBI said.
In this direction, RBI has proposed that the banks should provide information on deposit rates for various maturities and effective annualised return to the depositors. This information should be made available to RBI also, so that RBI can put a consolidated picture for all banks on its website.
The banking regulator also said that the banks should provide information on maximum and minimum interest rates charged to their borrowers. RBI will put this information in public domain. Banks have also been asked to switch over to “all cost” concept for borrowers by explicitly declaring the processing charges, service charges, etc. charged to borrowers. Such bank charges may also be publicly announced.
In the Mid-term Review of October 1996, it was stated that “a number of banks are charging lending rates far higher than PLR on a significant portion of bank credit to borrowers with credit limits of over Rs 2 lakh. It has, therefore, been decided that banks, along with the announcement of their PLR, should also announce the maximum spread over the PLR for all advances other than consumer credit. Banks should obtain the approval of their respective boards for fixation of maximum spread over the PLR”.
As per the latest available information, spreads above PLR of some banks are found to be substantial. In the present interest rate environment, it is not reasonable to keep very high spreads over PLR. Banks are, therefore, urged to review the present maximum spreads over PLR and reduce them wherever they are unreasonably high so that credit may be available to the borrowers at reasonable interest rates, the RBI said.
Further, banks should also announce the maximum spread over PLR to the public along with the announcement of their PLR. The Reserve Bank said it will review the matter again in October 2002 after further consultations with select banks with very high spread over PLR.