Borrowers need full loan pricing transparency. The RBI must enforce fair interest rate rules and consider well-performing UCBs for SFB conversion. Deposit insurance must rise above ₹5 lakh.
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This refers to the Editorial ‘Lending transparency’ (August 15). As lending is one of the key functions of banking, the pricing of products relating to it needs to be transparent and easily understandable to the buyers. Right now the lenders’ interest rate models are only partly transparent.
The borrowers must be made aware of all details about loan products and the price to enable them to make the right choice. Therefore, the RBI must enforce strict regulations to ensure fairness in interest rate policy across the industry.
While the demand for issuing fresh licences to Urban Cooperative Banks (UCBs) is understandable, the RBI should also selectively consider the requests of well-performing UCBs seeking conversion into Small Finance Banks (SFBs).
At the same time, as the custodian of public trust and the regulator responsible for safeguarding depositors’ interests, the RBI should ensure that any fresh licensing of UCBs is accompanied by stronger protection for depositors.
In this context, Section 21(3) of the DICGC Act should be suitably amended to provide full insurance cover for bank deposits, instead of limiting protection to the present ceiling of ₹5 lakh. This limit appears increasingly inadequate, particularly when DICGC premiums are collected on the entire insured bank deposit base. Furthermore, the regulatory framework governing UCBs should be strengthened and brought broadly at par with that applicable to Public Sector Banks (PSBs), particularly in areas concerning governance, prudential regulation, supervision, and depositor protection.
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