RBI vs. ROB (Rest of the Banks)
RBI on 4 th Oct 2017 released a report of the Internal Study Group, to Review the Working of the Marginal Cost of Funds Based Lending Rate System (MCLR). This rate is applicable to borrowers when they apply for loan. RBI through the banking system (I will call them - Rest of Banks (ROB)) manages the transmission of interest rate policy. The Executive summary started off with a very damning note on monetary policy transmission by the banks (under “Key findings”). The extract below is an indication that the committee was categorical in ascribing malafide intention, and was short of using the word “cheating”, in the manner in which, the Banks avoided policy rates transmission, to its respective customers. Extract from report -Key findings “Analysis conducted by the Study Group suggests that banks deviated in an ad hoc manner from the specified methodologies for calculating the base rate and the MCLR, to either inflate the base rate or prevent the base rate from fal...