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Customers of Indian banks continue to foot the bill for banking system inefficiencies

 

Customers of Indian banks continue to foot the bill for banking system inefficiencies :

The RBI continues to remain unable to influence (प्रभाव/असर) the effective lending (उधार/उधार देना) rates in the economy (अर्थव्यवस्था). In February, in its latest statement of intent (इरादा/अभिप्राय/आशय) to resolve (समाधान करना/निश्चय करना) poor monetary (मौद्रिक/मुद्रा-/आर्थिक) transmission (हस्तांतरण/दे देना), the RBI said it would instruct banks to switch base rate customers to the marginal (सीमांत/किनारे का) cost of funds-based lending rate (MCLR) system from April 1, 2018. In April 2016, it had introduced the MCLR regime (व्यवस्था/शासन/शासन), scrapping (खत्म/गिराने के लिये देना/फेंकना) the base rate regime, in place since 2010. “Since MCLR is more sensitive to policy rate signals, it has been decided to harmonise (मिलाना/समरूप करना/अनुरूप करना) the methodology (कार्यप्रणाली) of determining (निर्धारित करने) benchmark (बेंचमार्क/सतह) rates by linking the Base Rate to the MCLR,” it had said. This was supposed to push banks to lower lending rates. Currently, under the base rate system, the lending rate at State Bank of India is 8.7%. The one-year MCLR rate is just 8.25%. This difference of 45 basis points could make a significant (महत्वपूर्ण/सार्थक) difference in borrowing (उधार/कर्ज लेना) costs, especially for smaller firms (कंपनी/साझे का व्यवसाय) and retail (खुदरा/फुटकर) consumers relying (भरोसा/भरोसा करना) on equated monthly instalments (किश्तों/किस्त). In the RBI’s assessment (मूल्यांकन/निर्धारण/मूल्य निर्धारण/कर निर्धारण), a large proportion (अनुपात/समानुपात) of outstanding (बकाया/शेष) loans and advances continues to be linked to the base rate system. This perhaps triggered (शुरू हो रहा/रोका गया) the February statement.

Yet, the RBI is yet to operationalise (संचालन) that intent. One can understand the banks’ reluctance (अनिच्छा) to switch to the lower MCLR-based rates, given the multiple pressures they face, including record levels of non-performing assets (संपत्ति/परिसंपत्तियाँ) and losses, and significant (महत्वपूर्ण/अर्थपूर्ण) treasury (ख़ज़ाना/निधि) losses. The RBI, which has often faced flak (यानतोड़क तोपें/हवामार तोपख़ाना) for poor monetary transmission, shouldn’t be swayed (बह/असाधरण रूप से गहरी पीठ वाला) by these concerns (चिंताओं/सोच/मतलब). An RBI study estimates that public sector banks could take a ?40,000-crore hit on revenue (राजस्व/आय/राज्य की आय) if they allow all base rate borrowers (उधारकर्ताओं/उधार लेनेवाला) to switch to the MCLR rate. The RBI, which has just allowed banks to spread the booking of losses on the treasury front over four quarters (चार तिमाहियों) — after talking tough about such rollovers — may not want to hurt them more. But this creates an unfair situation as new borrowers get MCLR rates while the older ones continue on the higher base rate system. While a base rate customer can shift to the MCLR regime only by paying a fee, this outcome is not too different from the previous attempt by the RBI eight years ago to influence transmission by shifting to base rates from what was called a Benchmark Prime Lending Rate regime. There was no sunset clause (धारा/अनुच्छेद/उपधारा) included then. For troubled banks, this is an asset-liability (देयता/देनदारी) mismatch issue. Given the need to revive the economy through consumption and fresh investment, this impasse (गतिरोध/कठिन स्थिति/विकटस्थिति) needs to be broken.

Important Vocabulary

1. Influence (प्रभाव/असर)
Synonyms: control,pressure,effect,impact,access
Antonyms: beginning,insignificance,unimportance,cause

2. Intent (इरादा/अभिप्राय/आशय)
Synonyms: decided,set,absorbed,fixed,bound
Antonyms: flexible,indefinite,undecided,unfixed

3. Regime (व्य वस्था/शासन/शासन)
Synonyms: administration,management,government,system,pecking order
Antonyms: mismanagement,disorganization

4. Reluctance (अनिच्छा)
Synonyms: objection,doubt,questioning,unwillingness
Antonyms: happiness,approval,satisfaction

5. Impasse (गतिरोध/कठिन स्थिति/विकटस्थिति)
Synonyms: dilemma,deadlock,jam,pause
Antonyms: solution,boon,agreement,breakthrough

6. Assessment (मूल्यांकन/निर्धारण/मूल्य निर्धारण/कर निर्धारण)
Synonyms: appraisal,valuation,estimate,determination,reckoning
Antonyms: ignorance

7. swayed (बह/असाधरण रूप से गहरी पीठ वाला)
Synonyms: bend,incline,waver
Antonyms: straighten,hold,remain,stabilize,stay

8. Scrapping (खत्म/गिराने के लिये देना/फेंकना)
Synonyms: break up,retire,dismiss,discard
Antonyms: accept,agree,store,harmonize

9. Flak (यानतोड़क तोपें/हवामार तोपख़ाना)
Synonyms: abuse,disapproval,opposition,condemnation
Antonyms: approval,endorsement,sanction,commendation

10. triggered (शुरू हो रहा/रोका गया)
Synonyms: bring about,produce,generate,start
Antonyms: destroy,end,halt,prevent,stop,block,check

Credit to The Hindu News Paper

The RBI continues to remain unable to influence the effective lending rates in the economy. In February, in its latest statement of intent to resolve poor monetary transmission, the RBI said it would instruct banks to switch base rate customers to the marginal cost of funds-based lending rate (MCLR) system from April 1, 2018. In April 2016, it had introduced the MCLR regime, scrapping the base rate regime, in place since 2010. “Since MCLR is more sensitive to policy rate signals, it has been decided to harmonise the methodology of determining benchmark rates by linking the Base Rate to the MCLR,” it had said. This was supposed to push banks to lower lending rates. Currently, under the base rate system, the lending rate at State Bank of India is 8.7%. The one-year MCLR rate is just 8.25%. This difference of 45 basis points could make a significant difference in borrowing costs, especially for smaller firms and retail consumers relying on equated monthly instalments. In the RBI’s assessment, a large proportion of outstanding loans and advances continues to be linked to the base rate system. This perhaps triggered the February statement.

 

Yet, the RBI is yet to operationalise that intent. One can understand the banks’ reluctance to switch to the lower MCLR-based rates, given the multiple pressures they face, including record levels of non-performing assets and losses, and significant treasury losses. The RBI, which has often faced flak for poor monetary transmission, shouldn’t be swayed by these concerns. An RBI study estimates that public sector banks could take a ?40,000-crore hit on revenue if they allow all base rate borrowers to switch to the MCLR rate. The RBI, which has just allowed banks to spread the booking of losses on the treasury front over four quarters — after talking tough about such rollovers — may not want to hurt them more. But this creates an unfair situation as new borrowers get MCLR rates while the older ones continue on the higher base rate system. While a base rate customer can shift to the MCLR regime only by paying a fee, this outcome is not too different from the previous attempt by the RBI eight years ago to influence transmission by shifting to base rates from what was called a Benchmark Prime Lending Rate regime. There was no sunset clause included then. For troubled banks, this is an asset-liability mismatch issue. Given the need to revive the economy through consumption and fresh investment, this impasse needs to be broken.

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