Recently, in order to further deepen the market-oriented reform of interest rates, the People's Bank of China (hereinafter referred to as the "Central Bank") revised the "Regulations on the Administration of Renminbi Interest Rates" (Yinfa [1999] No. 77) to form a new "Regulations on the Administration of Renminbi Deposit and Loan Interest Rates" (hereinafter referred to as the "Regulations"), which further improved the content of high interest deposit collection, penalty interest rules and other aspects.
With the continuous promotion of interest rate marketization reform, the People's Bank of China has issued the "Drafting Explanation on the Regulations on the Management of RMB Deposit and Loan Interest Rates (Draft for Comments)" (hereinafter referred to as the "Drafting Explanation"), which points out that this revision is mainly aimed at adapting to the new situation, new tasks, and new requirements of deposit and loan interest rate management work, better reflecting the direction of interest rate marketization reform, and further establishing and improving the deposit and loan interest rate management system.
Specifically, the "Drafting Instructions" indicate that the "Regulations" have added a definition of improper means of absorbing deposits such as high interest deposit solicitation, clarifying that high interest deposit solicitation includes but is not limited to absorbing deposits through illegal manual interest payments, breaking through the market interest rate pricing self-discipline mechanism and agreeing on the upper limit of interest rate self-discipline, and disrupting the competitive order of the deposit market.
Previously, manual interest supplementation has been subject to regulatory attention. In April 2024, the self regulatory mechanism for market interest rate pricing issued the "Initiative on Prohibiting the Maintenance of Competitive Order in the Deposit Market through Manual High Interest Deposit Collection". It is explicitly required that banks shall not promise or pay any additional interest beyond the authorized limit of deposit interest rates to customers in any form.
The 'deposit loan linkage' in the 'Regulations' is clearly listed as an improper means, which is also worth paying attention to. "Wang Zhiyi, an expert from the Cross border Finance Research Institute, said that if loan conditions and deposit contributions are forcibly bound, loan resources become tools for pulling deposits, and even' deposit loan inversion 'arbitrage occurs, it may be included in issues such as high interest deposit collection and idle funds.
Tian Xuan, Dean of Guanghua School of Management at Peking University and a distinguished professor at Boya, stated in an interview with reporters that the clear inclusion of the definition of high interest deposit collection in departmental regulations marks a shift in regulatory constraints from "soft moral advice" to "hard legal red lines", significantly enhancing the binding force of rules.
For the deposit market, it will effectively curb irrational price wars between banks, regulate market competition order, and purify the deposit market environment. For the cost of bank liabilities, in the short term, the space for small and medium-sized banks to rely on illegal high interest rates to offset deposits will be compressed. However, in the long run, it will force banks to optimize their liability structure, reduce their dependence on high cost deposits, alleviate the pressure of irrational rise in the overall debt side of the industry, enhance the sustainable operation ability of banks, and create conditions for reducing the financing cost of the real economy. "Tian Xuan said.
Lin Yaheng, a macro strategy analyst at Southern Fund, stated that from a market perspective, further constraints on high interest deposits will drive deposit competition to shift from "competing on prices" to "competing on services, products, and customer management capabilities". From a macro perspective, it helps to promote smoother linkage between deposit interest rates, market interest rates, and policy interest rates, and improve the efficiency of monetary policy transmission.
Another clause that has attracted market attention in this revision is a significant adjustment to the penalty interest rules. According to the "Drafting Instructions", under the original regulations, there is a clear range of penalty interest for overdue loans and misappropriated loans. The "Regulations" have been revised to stipulate that the penalty interest rate, interest calculation method, and grace period shall be determined through negotiation between the borrower and the lender.
Tian Xuan stated that for the risk pricing ability of banks, the new regulations give them autonomy in pricing, forcing them to improve their internal risk rating system and set penalty interest rules based on the borrower's credit level and default risk differentiation. Overall, this will promote the refinement and upgrading of banks' risk pricing ability, but it also poses higher challenges to the risk pricing management ability of small and medium-sized banks.
For the rights and interests of borrowers, a reference value for the upper limit of penalty interest should be set in the format contract filing or consumer rights protection rules, or banks should be required to disclose the average penalty interest level of similar customers, forming soft constraints through transparency mechanisms, and avoiding the abuse of negotiation freedom to harm the interests of vulnerable parties, "said Wang Pengbo, Chief Analyst of Broadcom Consulting.