"PREDATORY LENDING" DRAWS RBI ATTENTION

The possibility that some banks may be resorting to predatory lending in the face of lacklustre appetite for loans and advances has caught the RBI's eve. Faced with tepid credit uptake in the wake of the economic slowdown, banks are wooing customers, especially in the small and medium enterprises category, from rivals with the promises of lowering pricing and extending additional credit facilities.

With banks making concessions to customers, who have been weaned away from rivals,to maintain balance sheet growth, bankers fear that yields on advances would come under pressure and bad loans could rise.

Customers no longer believe in having a long term business relationship with banks and do not think twice about ending association with one bank and moving to another if the rival bank quotes 50 basis points lower interest rate, offers additional credit facilities and better service.

Source: http://www.blonnet.com/2009/11/21/stories/2009112151220600.htm