RBI mulls annualised effective rate by banks

Reserve Bank of India Deputy Governor KC Chakrabarty has proposed the formation of an Annualised Effective Rate to tackle the confusion arising from different services,incentives and charges by different banks.

The discriminatory practices that banks adopt while sanctioning loans on a floating interest rate basis to new borrowers is possibly the best example in this regard. A factor which impedes easy comparison of rates among banks is differences in processing charges/ documentation fee/ renewal fee/compounding periods,etc, he said in Mumbai on Monday.

One of the measures which is globally adopted is to announce an Annualised Effective Rate taking into account all types of charges over and above the interest rate. The same can be done with deposit rate. This will be great enabler for easy comparison, he said.

According to Chakrabarty,bank staff dont tell customers when they are sell a credit card or an insurance policy that they may be incentivised through some compensation schemes.