Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty came down heavily on banks for lack of governance and opaque practices that were followed on pricing of loans.
“There should be non-discriminatory and transparent loan pricing…It would be one of the most important aspects of regulatory guidelines. Banks that will not follow this are going to suffer,” Chakrabarty said on the sidelines of Bancon, a banking seminar.
Chakrabarty’s comments come after banks failing to implement various processes aimed at benefitting customers, steps they had promised would be implemented. These include waiving the prepayment penalty on floating home loans, as is being advocated by the regulator.
Chakrabarty also said RBI's supervisory department would check how much time banks’ managements, including chairmen and executive directors, spend in their offices. The central bank would also review the governance structures of banks.
During the second quarter review of monetary policy in October, RBI had set up a committee on to look into principles governing proper, transparent and non-discriminatory pricing of credit. “We have appointed a pricing committee…Banks must strengthen corporate governance. As a regulator, it is my job to caution banks. If they don't improve governance, the restraint would not come from me, it would come from the owner,” Chakrabarty said.
He added the regulator had noticed certain discrepancies. Among these were concerns like the rise in base rates was not reflecting the increase in the cost of funds. Base rate, a cost-plus method of loan pricing, is the minimum rate below which banks cannot lend, implemented in July 2010 to increase transparency while pricing loans.
“Corporate governance would undergo a change and senior managements would have to bring out good corporate governance in managing issues,” he said. “Banking in India is one of the most profitable businesses. Banks lose money everywhere in the world, but not in India. Because of lack of competition, banks are making too much money at the cost of competition,” he added.
