Banks have passed on only a little more than a third of the benefits they have accrued so far from the past three successive rates reductions of 75 bps by the Reserve Bank to the borrowers, governor Shaktikanta Das Wednesday said urging them to do more.
Lowering the cost of borrowing can help prop up fresh investments and consequently push the sagging economic growth and with today’s unprecedented 35 bps repo rate cut to 5.40 percent the cumulative reduction since February is a hefty 110 bps.
Das said banks have passed only 0.29 percent in rate cuts to their borrowers as against 0.75 percent cuts in interest rates by the Reserve Bank till June. Since February, the repo rates have come down by hefty 110 bps to 5.40 percent with today’s 35 bps reduction.
He said banks have taken this stance despite financial markets, on which they depend for money, moving in tandem with the RBI actions and fully absorbing them rate cuts.
However, Das was quick to dismiss allegations that the banks have formed a cartel to keep the lending rates high.
“We expect higher transmission of policy action and stance by the banks in the weeks and months ahead,” Das told reporters after the announcement of the policy review where it has lowered the key rates by an unconventional 0.35 percent in a 4:2 votes of the rate setting panel.
“Our interactions with various stakeholders, including public and private sector banks, indicate that steps are being taken by them on an on ongoing basis to progressively lower their interest rates so that the benefits of policy rates reductions are fastened to the economy,” Das said.