RBI is pushing India's stubborn banks to cut lending rates

• Banks have passed on only 29 basis points of rate cut benefits to customers, even as RBI eased lending rates by 100 points since February.
  
• RBI Governor says he will take whatever steps necessary to ensure banks pass on benefits.
  
• Das also said that the system is flush with liquidity and it will help push growth.
  

The RBI governor Shaktikanta Das today said that they are willing to take whatever steps necessary to make sure banks transmit the benefits of interest rate cuts to customers.


The central bank has been trying to kickstart a slowing economy by reducing the interest rates at which it lends money to banks. However, banks have been absorbing these benefits, as less is seeping through to customers.


“RBI is monitoring this regularly. We have been meeting both public and private sector banks separately,” Shaktikanta Das said in a press conference.


A dismal 29 for 100

Even before the central bank cut its repo rate by 35 basis points today, it had eased its own lending rate by around a 100 basis points or 1%, since this February. This includes three 25 basis point cuts along with changing stance to accommodative, which adds another 25 basis point worth benefits.


Yet, as per RBI’s own admission, banks have only passed on 29 basis points of the benefit to its customers. If banks do not pass on the benefits, it will not help kickstart urban and rural demand which has been slowing down, as observed with tractor and passenger car sales.


‘RBI has done its part’

Making sure banks are actively working towards growth like RBI is, is much more necessary in the current situation. The central bank reduced this year’s growth projection to 6.9% from 7%, earlier.


“The RBI has done its part. We believe it is a cyclical downturn not a structural reform as of now,” said governor Shaktikanta Das, saying that there is room for structural reform.


With adequate measures from the government, growth should pick up pace as the central bank believes that the second half of the year will grow at 7.3%, though the first half grew only at 5.8%


As credit flow will pick up as banks go ahead and lend more at lower rates, the economic growth will start picking up, RBI believes. Das also said that the system is flush with liquidity and it will help push growth.


“Banks just come out of non-performing assets (NPA) with continuous quarters of loss incurred. Some of them are turning around, and credit flow will improve and weeks and months,” Das assured.



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