Spread on retail loans should be fixed : RBI
By Joseph Samson
Jan 3, 2011
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Banking regulator Reserve Bank of India is not satisfied with the concept of differential spreads maintained by banks for different retail loan customers. Spread refers to the difference in the interest rates charged by the bank and the rate at which it raises funds. The largest lender of the country, State Bank of India has removed the fixed rate scheme on home loans during the initial years and has put in its place a fixed discount instead.

RBI has argued that banks should do loan pricing on the basis of customer's portfolio and not as an individual. "If that is the case, then the central bank is asking how the spreads could be different for similar retail loans," said a senior banker.

According to RBI sources, a large number of complaints are being received by the apex bank regarding the preferential treatment offered to new customers. This is why the central bank has come forward to look into the matter.

RBI is also not happy with the 'floating rate'system adopted by banks in India. It said that the concept of floating rates in India is quite different from that in developed economies where the rates are linked to an external benchmark like London InterBank Offer Rate.


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