Module: | KYC, NPAs, Advances & Investment Valuations
Q229: Regarding the regulation of "Spreads" over benchmark rates (MCLR/External), which of the following statements are correct?
1. The spread charged to an existing borrower under the MCLR system generally cannot be increased except on account of deterioration in the borrower's credit risk profile.
2. The restriction on increasing spreads does not apply to loans under consortium or multiple banking arrangements.
3. Under the External Benchmark system, banks are strictly prohibited from reducing the "other components" of the spread for customer retention purposes earlier than three years.
4. The "Business Strategy" component of the spread must be arrived at without considering market competition.
2. The restriction on increasing spreads does not apply to loans under consortium or multiple banking arrangements.
3. Under the External Benchmark system, banks are strictly prohibited from reducing the "other components" of the spread for customer retention purposes earlier than three years.
4. The "Business Strategy" component of the spread must be arrived at without considering market competition.
✅ Correct Answer: A
Statements 1 and 2 are correct (Consortium loans are an explicit exception to the spread increase ban). Statement 3 is incorrect; a 2025 amendment allows banks to reduce spread components earlier than three years for "customer retention" on justifiable grounds.
Statement 4 is incorrect because business strategy components *must* consider market competition.
Statement 4 is incorrect because business strategy components *must* consider market competition.