Stop gouging small borrowers, RBI tells banks

The Reserve Bank of India has pulled up banks for continuing to charge unduly high interest rates from retail customers even while announcing a series of cuts in lending rates.

At a meeting with bankers before the new monetary policy is announced, the banks sought retaining of the soft interest rate regime. ''If after so much liquidity support, fiscal and monetary sops, the interest rates remain so high for retail customers, what is the meaning if it is not translating into a low interest rate regime for retail customers?'' RBI wondered.

In spite of regular announcements about lending rate cuts, the rates actually being charged are as high as 30 per cent in some cases and as low as 3-4 per cent for others - the latter rate is usually for short-term corporate loans for working capital. ''When we speak to banks, the card rates range between 8 per cent and 15 per cent. But these do not mean anything if the hidden charges are so high,'' said the official.

The RBI, in its report on Trends and progress in banking released yesterday, has also asked banks to stop relying on bulk deposits, which it has described as ''purchased liquidity'', and instead strengthen their liquidity management by shoring up core retail deposits.

The regulator has said banks' asset-liability mismatches have been exacerbated by such deposits on one end, which are essentially shorter in tenure, and lending in mortgages and core projects on the other.

RBI said minimising regulatory and tax arbitrage will be a challenge. The central bank also said it alone is best suited as a single regulator responsible for financial stability.