RBI weighs linking some new bank loans to policy rate
The Reserve Bank of India (RBI) is looking to get banks to link some new loans to its key policy rate or other external benchmarks, Governor Shaktikanta Das said on Monday, as he pushes them to cut rates faster to stimulate a flagging economy.
Since February, the RBI has cut the repo rate by 110 basis points (bps), but most Indian banks - which rely on an opaque rate-setting mechanism, have not come close to following suit.
The State Bank of India (SBI), the largest lender by assets, has cut its benchmark lending rate by 30 bps.
Commercial banks cite high deposit rates for their inability to cut loan ones. Marginal reductions restrict how much borrowers benefit from the repo cuts.
"Today, the economy requires a certain amount of push not just from the monetary policy but also from its transmission," Das said. "I think the time has now come to formalise this linking of new loans to external benchmarks like the repo rate."
"We'd kept the external benchmarks in abeyance earlier because we wanted to see how the market evolves," the governor told a banking conference in Mumbai. SBI, the largest lender by assets, earlier this year linked its savings bank deposits and short-term loans to the repo rate, becoming the first Indian bank to do so.
"I expect more initiatives and this process to become faster," Das said, adding that the RBI has been in talks with banks ensure "faster and greater" adjustment of rates.
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