Banks are free to decide lending rates; no RBI diktat: IBA

MUMBAI: The Indian Banks' Association today said it has not received any communication from the Reserve Bank to frame guidelines for banks on 'teaser' rates and lenders are free to decide their rate structure.

"Interest rates are a function of supply and demand--banks are free to decide their interest rates...We have not received any communication from the Reserve Bank to frame guidelines for banks on teaser rates," IBA's Chief Executive, K R Ramakrishnan, told PTI here today.

Ramakrishnan was responding to a media report, which said the apex bank has asked IBA to formulate guidelines to restrict banks offering very low interest rates for a short period.

"It is a liberalised environment now and instructions on interest rates cannot come from the RBI," he said.

Teaser rates are cheaper rates offered by banks to attract customers, primarily in home and auto loans. Several banks had come with special home loan offers by lowering their interest rates to as low as 8 per cent for a specified period.

The Reserve Bank has apparently not viewed 'teaser rates' favourably as evidenced by its deputy Governor, Usha Thorat, who said recently that the apex bank was concerned on banks offering teaser rates as it could burden the borrower at a later stage.