Banks in no hurry to benefit customers, even as RBI decreases lending rates

RBI, the central banking authority of India, has decreased the rates at which it lends to Indian banks, a move which would definitely benefit customers of several state-run banks. However, it turns out that banks are in no hurry to lower their interest rates, citing that they just did so when they shifted to a marginal cost based formula.

India’s state-run banks, which are burdened with huge bad loans, need even more decrease in RBI’s lending rate before they reduce their own rates.

"Banks' market borrowings are low, so deposit rates will need to come off further for meaningful transmission," SBI chairman Arundhati Bhattacharya told ET.

"This is important because it means an actual rate cut to the borrower of 25 to 50 bps even before today's rate cut. Put differently policy action is significantly greater today than just another 25 bps rate cut. Borrowing is now significantly cheaper and it will continue to get so," RBI governor Raghuram Rajan had said while announcing the cut in the central bank’s repo rates.

Look like customers won’t have to wait much longer for gaining from the cut in repo rates. "As MCLR finds its way in the next two months, we will have more rate cuts. Don't look at it as a 25 basis points cut but composite of a rate cut when it all adds up. Borrowing rates are coming down significantly in this economy," Rajan had said.

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