Frivolous remarks

Frivolous remarks
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First Published: Wed, Jun 27 2007. 12 13 AM IST
Updated: Wed, Jun 27 2007. 12 13 AM IST
This refers to the news item regarding the Central information commissioner’s (CIC) comments about “frivolous”?use?of?The?Right?to Information Act. Just as we do not condemn the entire press because of a few followers of yellow journalism, we should not mind a few people taking advantage of the RTI Act. Any attempt to put restrictions on the operations of the Act will be counter productive, and that exactly appears the intention of the “frivolous” and short-sighted comments of the CIC. RTI activists and groups must remain on their guard against such comments.
–Neetin Khedkar
This is in response to “The trap that banks set”, Mint, 21 June, by A.M. Godbole. At a time when India seeks to become a hub for financial activity, to have its own international financial centre and to increase the depth of the domestic debt markets, there is a need for a transparent and reliable benchmark.
The Mumbai inter-bank offered rate (Mibor) could not serve this purpose. Or, maybe, no one wanted it to, so they could continue to exploit the less-informed and cornered customers.
This adversely affects the corporate and individual customers alike. If the benchmark prime lending rate (BPLR) is the rate of interest at which banks lend to their best customers, how did some reputed business houses manage to borrow at sub-PLR rates a couple of years ago?
In order to provide borrowers with a transparent benchmark, the Reserve Bank of India (RBI) should launch its own benchmark and make it mandatory for all lending entities under its purview to use the same.
But one index is not going to be enough. Considering the changing shape of the yield curve. For example, the rate of interest offered by many banks on deposits over three years is the same as, or higher than, the rate on longer tenure fixed deposits.
A longer tenor borrowing need not necessarily have a fixed percentage spread over a short-term or medium-term instrument when an inverse yield curve is in existence, as prevailing currently.
It is, therefore, necessary to have separate benchmarks for various tenors. This will also help the popularization of derivatives in the Indian financial markets.
On the retail lending front, regulations should be made to prevent exploitation of particularly long tenor home loan borrowers. No bank should be allowed to offer lower interest rates to new customers than that applicable for existing floating rate customers.
About a year ago, banks were still offering a less than 7.5% per annum rate to new customers even as existing customers made to pay at much higher rates had only two options: (a) continue to pay higher rate of interest or, (b) switch to another bank by paying a steep 2% prepayment charge.
In fact, when the customer is made to pay processing charges while taking the loan, there should not be any exit charges (as in a mutual fund) because the bank is required to close the account one day or the other and complete the formalities.
– Sutanu Patil
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First Published: Wed, Jun 27 2007. 12 13 AM IST
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