A recent press report said that RBI has proposed to set up a working group to look into the pricing of loans and advances as there is a lack of transparency in pricing of floating rate loans and mispricing of risk.
According to a report from the RBI, it is very important to not that the transparency in pricing is given greater importance and that risk is priced adequately and borrowers are charged interest in a fair manner.
The RBI said that there were complaints where the spread charged to a customer had been revised or hiked frequently during the tenure of the floating rate loan, which has affected the new and also the existing customer over new. As a result the RBI had shifted 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.
Reports also said that 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.