The Hindu Business Line : Allegations of cartelisation — Banks drop move to fix floor-level lending rates

WITH the heat on against what was being perceived as attempts at `cartelisation', public sector banks seem to have abandoned their efforts to arrive at an industry-wide consensus on floor-level lending rates. Top bankers said there was no possibility of reaching such an arrangement at present.

"We are not pursuing any moves to fix floor-level lending rates," a Chairman and Managing Director of a large PSU bank, that was supposedly in the thick of such action, told Business Line.

In fact, a section of bankers denied that there had ever been such a move. Bankers said their talks to reduce the cut-throat competition among banks which were trying to woo each other's clients had been misinterpreted as efforts to reach a consensus on minimum lending rates.

"We were never in talks for fixing floor-level lending rates for the industry. What we were discussing in the past couple of months were self-regulatory measures against undercutting of interest rates to poach on each other's customers," a senior banker said.

Bankers said the discussions were focussed more on creating an information sharing mechanism among themselves to ensure that such undercutting of interest rates does not harm the industry. They said there was growing concerns of customers taking advantage of the intense competition. Customers were playing one bank against another to bargain for sharper lending rates.

During December, there had been several reports that PSU banks, along with a couple of smaller private sector entities, were eager to work out some concrete arrangement on minimum interest rates.

With the banks issuing no denial, (some of them were named as the principal players in the entire exercise), the Monopolies and Restrictive Trade Practices Commission stepped into the picture, arguing that such moves could violate the laws on restrictive trade practices.

"If such reports (regarding fixing floor rates for lending) are true, the matter would need to be enquired into, with a view to examining if the practice being adopted by the collective action of these bankers would amount to adoption of restrictive trade practices as defined under section 2(o) of the MRTP Act 1969, and/or would be a registerable agreement relating to restrictive trade practice under Section 33 of the Act," the Commission had said.

In a suo motu action, a two-member bench of the Commission had sent notices to the Indian Banks' Association, the Reserve Bank of India and the Finance Ministry seeking details on the proposed moves. It had said that a formal enquiry could be initiated based on the replies received. The Commission had set February 1, 2006, as the date for the next hearing in the matter.

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