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Shaktikanta Das expects banks to cut home, auto loans faster

The RBI has so far cut policy rates by 110 basis points and changed its stance to accommodative.

, ET Bureau|
Updated: Aug 07, 2019, 02.15 PM IST
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After delivering an unprecedented 35 bps in the policy, the Reserve Bank of India Governor Shaktikanta Das yet again raised the issue of lower transmission of policy rates by banks and said that there was a full transmission of policy rates by the financial markets. Das added that he expects banks to transmit policy cuts in a faster manner after announcing the fourth consecutive rate cut by the regulator.

Monetary rate impulses have been transmitted fully through the financial markets, weighted average call money rate declined by 78 bps, market repo rate is down by 73 bps, 10-year benchmark yield is down 102 bps but banks have only transmitted 29 bps between February to June on fresh rupee loans, the Governor said.

“In my interactions with banks they have indicated that they are progressively taking steps to lower their interest rates so that benefits of policy rate cuts are reflected,” he said while addressing the media after announcing the third bi-monthly monetary policy for 2019-20.

“We expect higher transmission of policy rates by banks in the coming weeks.”

The RBI has so far cut policy rates by 110 basis points and changed its stance to accommodative. But, banks have claimed that their cost of funds have remained high due to higher deposit rates, in fact Credit-Deposit ratios have been high over the last two years.

“It is for banks to decide who they lend to, RBI is creating an enabling environment for banks to improve credit flow, I expect credit flow to pick up soon,” Das added. “Please understand that banks are coming out of a continuous NPA cycle, they have faced losses for consecutive quarters so credit will pick in the coming weeks and months.”

The finance ministry on Monday had said that banks have agreed to take steps to review lending rates as they have not "commensurately" transmitted to borrowers benefits of reduction in the policy rate by the RBI.

"Banks need to commensurately transmit rate cut benefit in lending. In the meeting, banks agreed to take steps as per RBI guidelines to review their lending rates," the ministry said in a release.
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