RBI Wants Efficient Monetary Policy Transmission To Consumers, To Meet Bank Chiefs Post Announcement Of Rate Cut

Reserve Bank of India (RBI) governor Shaktikanta Das has stated that he will meet with the heads of both public and private sector banks to facilitate more efficient transmission of interest rate cuts to final consumers, reports The Hindu BusinessLine (BL).

On 7 February, the Monetary Policy Committee (MPC) cut the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.5 per cent to 6.25 per cent with immediate effect. This cut would allow individuals and corporate entities to borrow at cheaper rates of interest.

“Transmission of rates is very important, especially after the central bank announces a rate cut. It has already been stated in our post-MPC conference. I am having an interaction with the CEOs and MDs of banks, both public and private sector on 21 February,” said the governor.

Though the central bank cut rates by 25 basis points, the banks cut their marginal cost of funds lending rates (MCLR) only by five to ten basis points. Thus, this might substantially undercut RBI’s plans to boost the economy when the inflation rate is low.

On Big Banks

Today (18 February) Finance Minister Arun Jaitley also noted that to achieve economies of scale, India needs fewer but larger banks.

“With the experience in the past really has been of SBI merger, now it is second one which is taking place. India needs fewer and mega banks which are strong because in every sense, from borrowing rates to optimum utilisation, the economies of scale as far as banking sector is concerned are of great help,” he said.

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