The Reserve Bank of India (RBI) has been forced to intervene to ensure fair and efficient growth of the financial sector despite deregulation and competition. | |
| With a few banks resorting to unfair practices such as arbitrary revision of interest rates, charging usurious rates, framing unequal contracts and aggressive recovery methods, the banking regulator has been compelled to crack the whip. |
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| In a speech on financial sector policies for growth and employment delivered in Bali, RBI Governor Y V Reddy said, "As the reform progressed, it was assumed that deregulation and competition would enhance efficiency and ensure better than before quality of service at reasonable, but competitive, cost to the customers. However, while many improvements have taken place, entirely as expected, several adverse features in regard to retail customers were noticed, particularly in respect of a few banks." |
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| Apart from issues of proper pricing, instances of unequal contracts, unfair trade practices, non-transparent fees, intrusion into privacy, excessive penalties, delays in cheque-clearing, arbitrary revision of interest rates or equated monthly instalments, usurious interest charges in some cases and excesses by loan recovery agents have been noticed, warranting several institutional, policy and procedural interventions by RBI, added Reddy. |
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| RBI is considering it important to strike a balance between competing factors for ensuring both growth of financial sector and a meaningful contribution of the financial sector to growth and employment. |
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| "A delicate balance between competing considerations is needed, but to the extent banks have special privileges, the regulator who has granted such privileges has a responsibility to ensure financial deepening and widening in an efficient, fair and equitable manner," said Reddy. |
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| The governor had warned bank chiefs against arbitrary changes in interest rates and unfair contracts at the mid-term review of the monetary policy meeting on October 30. |
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| The regulator also wanted banks to rein in strong-arm tactics of recovery agents or face a ban from using their services. |
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| The other area of concern for the RBI had been the concentration of bank branches in metropolitan areas to the loss of semi-urban and rural areas, said Reddy. |
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| To tackle this problem, since 2006, RBI has been approving fresh branch licences for banks only on the condition that at least half of the new branches are opened in under-banked areas as notified by RBI. |
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| Reddy said, "Many banks now find that the branches in semi-urban and rural areas are also commercially viable." |
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