Friday, 24 April 2009

Jugglery in interest rates

As publicized from time to time different banks talk of their interest rates in an alluring manner ofcourse in the context of guidelines issued by the Reserve Bank of India at given intervals depending on market conditions. The rates so advertised by banks are taken by the public in good faith and on their face value which infact works out to be much more particularly in respect of loans as they apply their own tricks in the matter of 'rests', say monthly rest or quarterly rest resulting into interest on interest. If declared rate of interest on a particular loan is say 9% accumulating to 10,000/ in a particular month the chargeable amount for the next month is principal+10,000/ and the sequence goes on till due date by which time the overall interest burden multiplies to much more than 9%. The latest guidelines released by Reserve Bank provide that interest on Savings Bank accounts be calculated on daily basis with a view to allowing the depositors the advantage of a full rate. This will certainly give a better relief to investors if the banks really don't invent some new trick to bypass the provision. Practice till now obtaining in banks is to apply interest on minimum balance in respective accounts from 10th to the last day of each month. Why minimum balance and why not the aggregate amount for the month as a whole? If similar relief is given by the Reserve Bank in respect of the borrowers too in whose case interest compounds so heavily due to unilateral 'rests' this shall be a measure to give relief to millions of people in the country.

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