In what may be a repeat telecast of the past few monetary policy meets, the Reserve Bank Governor Raghuram Rajan today reprimanded banks for not transmitting rate cuts in their interest rates.
In the third bi-monthly monetary policy meet today, Raghuram Rajan said banks have merely lowered lending rates by a fraction.
He said, "Since the first rate cut in January, the median base lending rates of banks has fallen by around 30 basis points (0.30 percent) , a fraction of the 75 basis points (0.75 percent) in rate cut so far. "
Approaching banks with a carrot-and-stick, he urged banks to transmit lower rates by adding ,"As loan demand picks up in Q3 of 2015-16, banks will see more gains from cutting rates to secure new lending, and more transmission will take place."
While Pradeep Kumar, managing director, State Bank of India says any decision on lower rates depends on a fall in cost of funds, he says the bank has been cutting deposit rates much before the central bank.
The bank was among the first banks to cut fixed deposit rates by 25 basis points consecutively two-times even before RBI's rate cut in January. The bank also took the lead in lowering its base rate by 15 basis points (bps) to 9.70 percent soon after the April monetary policy.
Other banks, however, trimmed their lending rates only after being prodded by the Governor in the policy meeting saying banks had no excuse to keep rates high.
SBI's base rate is 9.7 percent. Private banks ICICI Bank and HDFC Bank cut their base rates to 9.7 percent each from 10 percent between April and June.
K Venkata Rama Moorthy, executive director, Bank of Baroda, agrees there will continue to be lag effect with respect to transmission of rates, but adds that the bank may cut rates before the next policy meeting scheduled September 29. 2015.(Written by Ritika Dange)
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
