Reserve Bank of India (RBI) deputy governor KC Chakrabarty said on Friday that the central bank would look into why banks were raising loan rates by such hefty amounts when their costs were not going up in the same proportion.
?We find that banks are increasing rates by 2.5% when the cost of funds is going up by just 1%,? Chakrabarty said at the inaugural session of Bancon 2011.
A pricing committee has already been set up by the RBI and it would look into the matter to ensure transparency, he said. The deputy governor observed that the central bank had asked banks to waive the pre-payment penalty on floating rate loans ?but we are not able to understand why banks are unwilling to do so?.
Chakrabarty said the base rate system introduced in July 2010 was meant to impart greater transparency to the way banks charged the customers. He said while the RBI was giving banks a fair degree of autonomy, banks on their part needed to exercise restraint. ?We need to know how many days the chairmen remain in their headquarters and how much corporate governance is there and whether the board is keeping control or not. We are going to collect information on this in the coming days,? he said.
Chakrabarty, however, denied that RBI was attempting to micromanage the affairs of banks. ?It is just a suggestion that banks should strengthen themselves because, otherwise, the owners or, in other words, the government, will start micromanaging them.?
Banking in India, he said, was a profitable business, adding that there wasn?t adequate competition. ?Banks are making too much money at the cost of customers,? said Chakrabarty. The next decade would be a defining and challenging decade for the Indian banking industry, he said. ?So far, we have not been able to provide banking services to 60% of the country?s population, but I am sure that by the end of this decade, banking facilities would be made available to every household in this country,? he said.