RBI Wants Banks To Pass On Rate Cut Benefits To Customers

20/03/2015 2:20 PM IST | Updated 15/07/2016 8:25 AM IST
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A customer deposits a Indian five-hundred rupee banknotes at a branch of the HDFC Bank Ltd. in Mumbai, India on Thursday, Aug. 22, 2013. India's rupee slumped to an all-time low after Federal Reserve minutes showed the U.S. is getting closer to reducing stimulus that has fueled demand for emerging-market assets. Photographer: Dhiraj Singh/Bloomberg via Getty Images

NEW DELHI — Reserve Bank Deputy Governor S S Mundra today said that he expects banks to cut interest rates as the central bank has already lowered policy rates twice in quick succession.

"RBI, in very short period of time, has cut repo rate twice. It is expected from the bankers that they pass on the benefits (to consumers)," he said on the sidelines of an event here.

The Reserve Bank has lowered interest rates by 0.50 per cent since January 2015, but banks are yet to pass on the benefits to borrowers.

The latest cut was done on March 4 when RBI reduced repo rate from 7.75 per cent to 7.50 per cent. It was prompted by inflation remaining low and came within days of Finance Minister Arun Jaitley announcing in the Union Budget that the government is committed to fiscal consolidation.

Meanwhile, banks have said that they will wait till the next bi-monthly monetary policy review of the RBI on April 7 before cutting interest rates.

"Coming April, after seeing RBI monetary policy statement, banks can start considering reduction in the rate... We can reduce anywhere from 10 basis points to 25 basis points," Bank of India Chairman V R Iyer had said.

"The transmission will definitely take place... Banks also have to keep asset quality in mind (before passing on the benefit of rate cut). That is a guiding factor for any bank to reduce lending rate," he had said.

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