Mumbai, Oct. 29: The Reserve Bank of India (RBI) today asked banks to review both their spreads and prime lending rates (PLRs).
Experts feel this may be a shift from the RBIís normal practice of leaving any decision on prime lending rates to banks themselves. In its mid-term review of the monetary and credit policy, the RBI, while referring to the April monetary policy said that banks then were urged to review the maximum spreads over PLR and reduce them wherever they were unreasonably high.
ďA few banks have reduced their maximum spreads marginally. The Reserve Bank has been monitoring maximum spreads over PLR and also the range of lending rates at which maximum business is contracted under a new information system. According to the latest available information, both PLR and spread vary widely across banks/bank-groups. Ideally, in a competitive market, PLRs among various banks/bank-groups should converge to reflect credit market conditions,Ē it added.
Pointing out that spreads around the PLR should be reasonable, the central bank noted that in the current environment of low inflation, unreasonably wide spreads could adversely affect the overall credit portfolio of banks. Further, very wide spreads provide opportunities for non-transparency.