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Banks told to review spreads over PLR, cut borrower cost

CREDIT POLICY

The Reserve Bank of India on Monday asked the banks to review high spreads over their prime lending rates and reduce them to ensure that credit was available to the borrowers at reasonable interest rates, spreads above PLR were substantial and in the current interest rate environment (of low rates), "it is not reasonable for banks to keep very high spreads over prime rates", the RBI said in its Monetary Policy for 2002-03.

Banks should announce the maximum spread over PLR to public to improve transparency, it said adding the apex bank would discuss the matter with select banks which had a very high spread over PLR. The issue would be reviewed again in October 2002.

Banks should provide information on the maximum and minimum rates charged to borrowers and the same would be put in public domain to improve transparency, RBI said.

Similarly, to promote competition and ensure customer protection, banks should provide information about deposit rates for various maturities and effective annualised return to the depositors, it said.

"Banks are urged to switchover to all cost concept for borrowers by declaring processing charges and service charges," RBI added.

ALSO READ:
The Monetary and Credit Policy 2002-2003
The Rediff Budget Special
Money

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