RBI not to grant new bank licence to all eligible companies

Moneycontrol Bureau

The Reserve Bank of India (RBI) will not grant new bank licences to all eligible companies, which have applied for the same, said the central bank governor Duvvuri Subbarao on Thursday in Chennai. A group of 26 companies had applied for new banking licence from both public and private sectors. The last date of application was on July 1.

Must read: RBI names 26 applicants for new banking licence

"It will take three-four months to get more inputs on bank licences. After that, RBI will send bank licence proposals to external panel. Not all eligible companies will be granted bank licences," he said.

On interest rate cuts

In line with the finance ministry Subbarao insisted that banks should cut interest rates passing on the benefits of RBI policy rate reductions. So far in 2013, the RBI slashed repo rate by 75 basis points and cash reserve ratio or the portion of bank deposits kept with RBI, by 25 bps. However, most banks have not yet started reducing their rates.

"When RBI calibrates its short term policy interest rate, the expectation is the monetary transmission will takes place and the banks should respond by calibrating the lending rates. Some banks have responded, some have not yet," the governor said.

"There are several reasons for monetary transmissions not being agile as it should be. So, in a way, RBI is conscious of the need of monetary policy transmission taking place. It is important that banks respond by calibrating their lending rates in order to attract investments."

Economic growth

On Wednesday, finance minister P Chiddambaram nudged all state-owned bankers to cut their lending rates following the policy rate cuts. Reacting to FM's SOS for a monetary policy that supports country's growth engine, Subbarao said, the central banks is also "very cautious" of the need to be supportive of economic growth.

INR-USD exchange change rate

On the exchange rate volatility Subbarao reiterated its previous stance: the RBI does not fix any specific target for the rupee-dollar exchange rate. The central bank uses all tools for managing forex volatility.

"We must bring current account gap to sustainable levels. We have no plan to give interest on CRR obligation. Moreover, we continue to ensure banks’ non-performing assets come down," he said.

saikat.das@network18online.com