Recently banks had come up with good lending rates (above 11% ) for short term loans to corporate sector. This is a cause of concern for RBI and ministry of Finance as these banks by providing attractive rates is able to clean their balance sheet which actually is running into huge losses.

This can have misguiding effects on the prospective shareholders and they may end up investing in a portfolio which though looks very profitable but actually can be disastrous for them. Furthermore, a healthy balance sheet (which in real sense is very murky) may create a good picture of the bank and may lure small depositor who may at later stage feel cheated.

In order to trace such malpractices Ministry of Finance has asked banks to inform about the best rates offered by them on deposits up to six months, one year and above one year. This database will help in monitoring if any bank is offering very high rates for short term deposit as it is not feasible.

If my memory serves me right, many small depositors ran into trouble in 2004 due to inflated results published by Global Trust Bank and finally RBI had to put moratorium on the bank. Close monitoring by asking bank to give details of the best interest rates offered by them will certainly prevent GTB incident from repeating itself. This is a good step forward by Ministry of finance to save the portfolio of investors and small depositors from being ruined.

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