The reduction in reverse repo rate by 25 basis points to 3.75 per cent by the Reserve Bank is a significant step but it is important that banks should increase their risk appetite, say economists and analysts.
“The reduction of reverse repo is significant but it needs to be seen if the flow to the private sector actually increases,” Care Ratings Chief Economist Madan Sabnavis said.
DBS Bank India Economist Radhika Rao said the reduction in the reverse repo rate is meant to prod banks to consider lending activity rather than park funds with the central bank.
“Given the still sizeable funds that is being parked with the central bank under the reverse repo operations even after the 90 basis points cut in March, points to the limited credit and risk appetite of financial institutions,” Rao said.