Mumbai: Heads of public and private sector banks on Thursday told Reserve Bank of India (RBI) governor Shaktikanta Das that it will be difficult to pass on the benefits of the repo rate cut to borrowers immediately, but were willing to take it up for discussion at the next asset-liability management committee meeting, two bankers aware of the matter said.
“We gave our side of the story and said since we are heavily dependent on deposits to fund the loans we give out, a change in repo rate will not immediately affect the lending rate," the first banker said, requesting anonymity. He added that the issue of external benchmark-linked lending rate was not discussed in detail and could be done at a later stage.
The second banker, also requesting anonymity, said that RBI had not set a deadline to reduce rates, and the meeting was more about understanding why the banks could not lower the rates within a specified period. All bank chiefs told the RBI governor that they will discuss this issue at their next meeting when the marginal cost of funds-based lending rate (MCLR) will be determined.
Speaking to reporters after finance minister Arun Jaitley addressed the board of the central bank on Monday, Das said that he would meet heads of public and private sector banks to discuss the issue, given that transmission of monetary policy decisions—such as rate cuts to borrowers—was important.
The RBI’s monetary policy committee (MPC) had cut the repo rate by 25 basis points to 6.25% earlier this month, besides changing the policy stance to neutral, citing easing inflation and the need to sustain growth in the world’s fastest growing major economy.
Only eight of the 38 economists surveyed by Bloomberg had expected RBI to cut rates, the first such move since August 2017.
The central bank also trimmed its retail inflation forecast for the first half of the next fiscal year and marginally lowered its economic growth estimate to 7.4%.
The monetary stimulus, announced in governor Das’s debut policy meeting, will help the government boost economic growth.
Following the RBI rate cut, bankers had said that the liquidity situation was still tight and any chance of passing on the rate cut to customers was slim, more so as credit was growing at a faster pace than deposits, and putting pressure on banks’ resources. Many private banks have, therefore, been hiking deposit rates.
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