While the Reserve Bank of India sees merit in cutting policy rates, bankers seem reluctant to pass on the benefit to borrowers and are not ready to make a commitment even after the surprise rate action on Wednesday. Industry representatives want cheaper loans, and are asking banks to act.
RBI Governor Raghuram Rajan said he was confident the move would persuade banks to reduce lending rates. “The process of transmission is somewhat asymmetric. Banks tend to be a little faster in raising rates rather than cutting rates. I have no doubt that the pressure of the two rate cuts over time will feed into lower rates,” Rajan said.
Out of 45 banks in the country, only three banks had cut lending rates in January when the RBI had, in a surprise move, slashed repo rate by 25 basis points.
State Bank of India chairperson Arundhati Bhattacharya, though welcomed the RBI’s decision on Wednesday, but did not commit anything on the bank’s base rate. “Our bank will take an appropriate call of a cut in base rate by looking at all evolving circumstances,” said Bhattacharya.
Industry though was not very impressed. “Even the 25 basis points reduction effected earlier did not lead to any pickup in economic activity since the rates charged by banks didn’t come down,” said P Balendran, vice president, GM India.
Ravi Uppal, MD and group CEO of Jindal Steel and Power, too, called for more rate cuts in the near future.
However, TM Bhasin, chairman, Indian Banks’ Association, said, “Since there is a lag effect for the monetary transmission to take place, effect of previous 25 bps cut together with the present rate cut would encourage banks to review their base rates.”
Chanda Kochhar, MD & CEO, ICICI Bank, said: “The repo rate cut is a welcome step that demonstrates RBI’s comfort with the inflation outlook.”