The Reserve Bank of India (RBI) will announce a new guideline on January 4, giving itself a new “supervisory” role on pricing of products made by banks. At present, banks are free to fix their own prices.
Speaking on the sidelines of a book launch here, K C Chakrabarty, RBI deputy governor, said: “On January 4, when the RBI governor (D Subbarao) addresses the Ombudsman conference, an announcement on the new guideline will be made”.
While refusing to share any detail on the new guideline, he said globally, supervisory role addressed consumer protection issues and it was one of the agendas of G20 economic reforms. G20 is a grouping of 20 major economies including India, China, Brazil and the European Union, which proposed several reform measures to strengthen the global economy.
“What we will look is whether there is any discrimination among the customers, and banks must convince that the pricing of products was based on proper risk management and what was the logic behind it,” he said.
Asked whether RBI wanted to take control of pricing again, he said: “All we are asking is whether you are doing the right thing and examine that. Look at risk-based pricing, if you (banks) charge too much interest rate, good customer will not come. When the prices are too high, the entire society is blaming RBI and I am not happy about that. If price becomes exploratory, then we will intervene as we did in microfinance.”
For instance, banks give education loan at 17 per cent, while housing loan is at 10.5 per cent. “Which is more important? Education will change the fortune of the country. Banks must explain the risk perception based on which they charge,” he said.
Chakrabarty also urged banks to follow proper risk management, and pricing. “A board-approved proposal quickly gets restructured, but a bank manager-approved loan is not. Data indicates that large borrowers have invariably received the benefit of restructuring loans, while the restructuring in case of SME (small and medium enterprises) and agriculture have remained abysmally low.”
He further said an attitude of complete risk aversion would not be appropriate for banks and they should have the ability to manage non-performing assets (NPAs) properly.
Rising impaired assets is a “governance” issue as banks have forgotten the art of saying no’ except to small borrowers. “Banks need to significantly improve their risk assessment capability and their ability to price risks, so that they take on only those risks that they understand and can efficiently manage,” he added.
The central bank has warned against the deteriorating asset quality of Indian banks. The bad assets of Indian banks grew 46 per cent in the financial year ended March 2012. As on March 31, gross NPAs of the banking system stood at Rs 1.37 lakh crore.