RBI sets up working group on loan pricing

RBI sets up working group on loan pricing

Mumbai: The Reserve Bank of India (RBI) has proposed to set up a working group to look into the pricing of loans and advances as it sees a lack of transparency in pricing of floating rate loans and mispricing of risk.

There have been instances of customer complaints where the spread charged to a customer has been revised upward frequently during the tenure of the floating rate loan, resulting in a disadvantage to an existing customer over new, the central bank said.

The RBI moved banks to a base rate system in July 2010 from a prime lending rate system to ensure proper monetary transmission.

Banks cannot price loans below the base rate.

“While the base rate can change depending on the cost of funds, the spread over the base rate should undergo change only when components of the spread undergo changes," the central bank said.