Loan mispricing, transparency are under scanner

By | September 18, 2011

A recent press report said that in order to control the mispricing of risks and the lack of transparency in loan pricing, the RBI has planned to set a group to suggest ways to have a transparent and non-discriminatory regime.

The RBI has said that there are many chances of risk mispricing and lack of transparency, specially for floating rates loans and in sometimes the spread charged to a customer has been revised upward often during the tenure of the floating rate loan. It said that the existing borrowers are affected very much compared with new customers with the same credit rating.

RBI reports mentioned banks have to determine interest rates on advances with reference to the base rate by adding a spread reflecting product specific charges together with term premium and risk premium.

The regulator has decided to form a working group to look into existing norms and is likely to suggest required revisions, taking into account the best international practices and accounting standards.

Reports said that the restructuring guidelines last revised in August 2008, has facilitated both the lenders and borrowers during economic downturns. The RBI has also received requests from stakeholders to review the restructuring guidelines in the light of experience gained.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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