The Reserve Bank of India (RBI) may prod commercial banks in a scheduled meeting on Thursday to cut interest rates after its unexpected 25 basis points policy rate cut on 7 February.
After a customary address by finance minister Arun Jaitley to the board of the Reserve Bank of India (RBI) post the presentation of the interim budget, RBI governor Shaktikanta Das said transmission of rates is very important after the central bank announces a rate cut. “I am having an interaction CEOs and MDs of various banks, both public and private sector, that is now scheduled to be held on 21 February. We will discuss that issue with the banks. And see what needs to be done," he added.
Das said addressing the RBI board, Jaitley spoke about the fiscal situation and reform measures undertaken by the government as well as government’s view on the state of the Indian economy.
When asked about high real interest rates, Jaitley evaded the question. “The RBI knows the real situation. Let’s leave their jurisdiction to them," he said.
India’s retail inflation slowed to a 19-month low in January at 2.05%, opening more space for the central bank to cut interest rates. The Monetary Policy Committee (MPC) of the RBI on 7 February changed its stance from calibrated tightening to neutral and cut the policy rate by 25 basis points on the back of benign headline retail inflation and slowing global growth.
On availability of credit in the economy, Das said while credit growth to the commercial sector as a whole has shown some improvement, it is not broadbased. “It is not flowing into various sectors as it should be," he added.
On merger of public sector banks, Jaitley said India needs fewer and bigger banks which are strong in every sense, from borrowing rate to optimum utilization. The economies of scale as far as banking sector is concerned are of great help, he added.