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RBI issues directives for transparency in interest rates

CREDIT POLICY

The Reserve Bank of India has given a 3-point directive to banks to ensure a greater degree of transparency in regard to actual interest rates for depositors as well as borrowers in the customers' interest and to have a meaningful competition.

The RBI on Monday asked banks to reduce unreasonably high maximum spreads over the Prime Lending Rate for making credit available to borrowers at reasonable interest rates.

In 2002-03 monetary policy, RBI said ''It is not reasonable to keep very high spreads over PLR. Banks are therefore urged to review the present maximum spread over PLR and reduce them wherever they are unreasonably high.'' RBI said a number of banks are charging lending rate far higher than PLR on a significant portion of bank credit. Banks have, therefore, been directed to announce the maximum spread on PLR for all advances other than consumer credit.

RBI has asked banks to provide information on deposit rates for various maturities and effective annualised return to the depositors, information on maximum and minimum interest rate charged to borrowers and to switchover to all cost concept for the borrowers by explicitly declaring processing, service and other charges.

RBI said all these information should be made available to it so that a consolidated picture for all banks can be posted on the Central Bank's Web site.

UNI

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