Nearly a week after the bi-monthly policy, Reserve Bank of India Governor Shaktikanta Das told heads of public sector banks that resolution of stressed assets should happen in a co-ordinated manner. In a meeting with managing directors and chief executive officers of state owned banks, Das also said that transmission is not adequate and banks should ensure full transmission of policy rate cuts.
Das also discussed other issues like credit flow to productive sectors like MSME and NBFCs. He also discussed outlook on resolution of stressed assets and recovery of NPAs.
In the policy last week, monetary policy committee of RBI said transmission of cuts in repo rates into lower bank lending rates is expected to improve going forward as floating rates come for renewal and the share of old base rate loans decline.
The MPC said that after the introduction of the external benchmark system, most banks have linked their lending rates to the policy repo rate of the central bank. It said that the median term deposit rate has declined by 47 basis points (bps) during February-November 2019. Moreover, the weighted average term deposit rate declined by 9 bps in October as against a decline of just 7 bps in eight months during February-September.
The credit market transmission remains delayed but is picking up, it said. According to RBI data, the 1-year median marginal cost of funds-based lending rate (MCLR) has declined 49 basis points and the weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by 44 basis points, while the WALR on outstanding rupee loans increased by 2 basis points during this period.
According to RBI, monetary transmission has been full and reasonably swift across various money market segments and the private corporate bond market. As against the cumulative reduction in the policy repo rate by 135 bps during February-October 2019, transmission to various money and corporate debt market segments ranged from 137 bps (overnight call money market) to 218 bps (3-month commercial papers of non-banking finance companies). Transmission to the government securities market, the MPC said, has been partial at 113 bps (5-year government securities) and 89 bps (10-year government securities).
However, transmission is expected to improve going forward as the share of base rate loans, interest rates on which have remained sticky, declines and MCLR based floating rate loans, which typically have annual resets, become due for renewal," it said.