Government intervention in deciding lending rates of the banks really helps a lot.
It is quite reasonable for RBI to do that so that we could avoid a debt crisis, like it is looming large in Greece, USA or the other European countries. First problem…there is recession..and if the lending rate is not monitored..it will lead to major debts!
Reserve Bank of India announced yesterday that no bank will be permitted to lend below 7% – a step leading to make an effective monetary policy. And, one more good thing that happened is the base rate will be transparent. The earlier decision of the central bank (RBI) to allow banks to lend below bench mark rates led to lack of transparency. This ‘flexibility’ was asked for….. to compete with international practices and existence of sub-PLR rates. Now, every country has learned from the credit crisis in the US. So, that’s all gone, with no more intention to compete with international practices. Why to lend to top-rated clients at rates that do not even cover funding costs?
Even, collateral lending does not help to monitor if the central bank allows dynamic PLR. This move by the central bank still does not control co-operative banks’ lending. I think that is a aspect to be looked into by RBI, if it can, in any way possible!
I hope RBI intervenes more and makes – customer service, branch proximity, comfort levels – as mandatory feature of every nationalised bank, so that no other foreign bank lends below PLR in India.