Chennai, July 4 (PTI): Concerned over the lack of transparency in bank lending rates, Reserve Bank governor D. Subbarao today said the central bank had set up a working group to address the problem.
"One problem that has persisted even after the introduction of the base rate system relates to the lack of transparency in the customer-specific spread charged to a borrower over the base rate," Subbarao said at an Indian Overseas Bank function here today.
"There have been complaints that the spread charged to a customer has been revised upwards without any apparent change in his/her risk profile," he said.
Also, where floating rate loans are concerned, existing customers have been disadvantaged vis-�-vis new customers with similar credit ratings, resulting in complaints about discrimination.
In order to address this malady, Subbarao said the RBI had set up a working group under the chairmanship of deputy governor Anand Sinha to determine the principles that must govern proper, transparent and non-discriminatory pricing of credit.
The working group is expected to submit its report by next month.
To improve transparency in interest rate, the RBI introduced the base rate from July 1, 2010 in place of the benchmark prime lending rate (BPLR).
The base rate is the minimum lending rate below which a bank cannot lend. However, in the BPLR system, banks were allowed to lend below the benchmark rate.
BPLR was introduced by the RBI in 2003 to serve as a benchmark rate for lending.
Subbarao said, "Under the new system (base rate), each bank is mandated to determine a base rate of interest to include those cost elements which can be clearly identified and are common across all borrowers ' cost of deposits, cost of maintaining the statutory liquidity ratio and cash reserve ratio, cost of operations, and the profit margin."