Money & Banking

RBI Governor expects banks to lower lending rates

Our Bureau New Delhi | Updated on July 08, 2019 Published on July 08, 2019

Shaktikanta Das, Governor, Reserve Bank of India (file photo)   -  Bloomberg

Das said right from June liquidity in system is in surplus; banks say deposit cost still high

8Reserve Bank of India (RBI) Governor Shaktikanta Das on Monday said he expects lending rates to come down.

His remark comes at a time when banks have not responded proportionally to the 75-basis point cut in the policy rate (100 basis points or bps means 1 percentage point).

“When there is adequate liquidity, it always facilitates better transmission. So, I would expect that in coming weeks and months we should see better transmission taking place,” Das said at a press conference here on Monday.

He further said this matter is reviewed constantly at the RBI and appropriate measures are taken as and when required.

Das said earlier it used to take six months for transmission, but now that has come down to 2-3 months.

Das said that right from June the liquidity in the system is in surplus. Liquidity backstop for banks to implement NBFC package will further enhance the liquidity and that, in turn, will have an impact on interest rate.

The Monetary Policy Committee (MPC) chaired by the RBI Governor lowered the policy repo rate (the rate at which the central bank lends to commercial banks for a short period) thrice successively by 25 basis points each, i.e. total of 75 basis points.

Das recalled his statement given after the last policy review when he had said that by that time 50 bps of repo rate cut had been announced, and out of this 21 bps had been transmitted. Now, after another round of cut, transmission has not been very encouraging.

Banks, on the other hand, say that the cost of deposit is still high which means it is difficult to lower the rate on lending. They blame interest rate on government-administered small saving schemes for higher cost of deposit.

Even after a cut in interest rates on small saving schemes, a five-year NSC will give you 7.9 per cent, while a term deposit below ₹2 crore with a maturity period of five years in SBI will fetch 6.6 per cent (7.1 per cent for senior citizens).

NBFCs under RBI

The Budget has proposed relief for NBFCs (non-banking financial companies). It was said that NBFCs that are fundamentally sound should continue to get funding from banks and mutual funds without being unduly risk averse.

For purchase of high-rated pooled assets of financially sound NBFCs, amounting to a total of ₹1-lakh crore during the current financial year, the government will provide one-time six months’ partial credit guarantee to public sector banks for first loss of up to 10 per cent.

Taking this forward, the RBI announced ₹1.34-lakh crore window for banks to buy assets.

Das said that now it is up to banks to implement and the RBI will be there for further help.

“The RBI will backup the banks if individual banks require additional liquidity. In the system there are so many banks. Overall there is liquidity, within that, if there are individual banks, which have a liquidity issue, the RBI will provide liquidity support to them,” he said.

“When there is adequate liquidity, it always facilitates better transmission. So, I would expect that in coming weeks and months we should see better transmission taking place”


Published on July 08, 2019
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