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22
February 2019
 |
RBI
(The Total Investment & Insurance Solutions)
Reserve
Bank of India (RBI) Governor Shaktikanta Das on Thursday met PSU and private
sector banks CEOs and MDs to discuss rate transmission and persuade them to
pass on the advantages after taking note of the non-passing of the benefits of
lower interest rates to the consumers following a key policy rate cut by it
recently while the banks are said to have raised their concern on protecting
their margins to provide for the NPAs and banking operations which may be hit
if they start passing on the full rate cut to the consumers.
Earlier
this month, the RBI cut the benchmark interest rate by 0.25 per cent to 6.25
per cent. But banks have so far cut only 5 basis points after the rate cut.
According to a banking chief present at the meeting held in Mumbai, after the
April MPC meeting of the RBI, if there is a rate cut further by the central
bank, then banks would feel comfortable to pass on full benefits. SBI has cut
the interest rate by just 0.05 per cent.
As
a policy step, RBI has the power to issue instructions to the banks to pass on
the benefits but in today's meeting the discussion was on listening to the
bankers' side also and the Das listened to them as well on their limitations,
said a source. Banks lend on the basis of MCLR, PLR and base rates.
Concerns
over a full pass-through of lower interest rates to the economy emerged after
lenders lowered lending rates by only 5 basis points after a 25 basis point
rate cut by the RBI in early February, raising questions on the efficiency of
monetary policy transmission.
A
former bank chief said the rate cut by RBI to translate directly into loan rate
cut is not that easy. Banks have to reduce deposit rates for reducing MCLR
rates who also have the challenge to raise the deposit growth and lower deposit
rates don't attract savings. And here the situation is not very bright as
credit growth has been 9.3 per cent versus 6.1 per cent deposit growth of the
banks.
Banks
also have to protect their margins to provide for the NPAs and meet other
banking expenses, so if they go on passing the full rate cut, they would have a
weak financial base again eroding their margins.
This
has been expressed by the SBI chairman recently as Rajnish Kumar said that the
bank currently does not have any headroom to cut interest rates. Many other
banks aslo expressed similar views in the meeting.
The
RBI is mandated to see whether banks are cutting lending rates in line with
repo rates.
The
home loan borrowers have often complained about the opacity of the interest
rate fixing mechanism which allows banks not to pass rate cut benefits in
lowering home and auto loan rates.
"Transmission
of rates is very important especially after the central bank announces a rate
cut," Das had said after its board meeting in the capital.The Total Investment & Insurance Solutions
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