RBI Governor expects quicker transmission of rate cuts by banks

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Shaktikanta Das

Reserve Bank of India (RBI) Governor Shaktikanta Das has said he expects that, in the coming month’s quicker transmission of the interest rate cuts will be provided by banks to consumers through the cheaper home, auto, and personal loans.

Till July 2019, the central bank has reduced the key policy rate thrice with an aggregate reduction of 0.75 percentage point in the repo rate, the rate at which it lends to banks.

“In the last Monetary Policy Committee (MPC) meeting (June 6) I had said that by that time 50 basis points of repo rate cut had been announced, and out of this 21 basis points had been transmitted. And one positive thing that is happening now is, earlier it used to take six months for transmission, now the transmission is taking a much shorter period of 2-3 months,” RBI Governor Shaktikanta Das said.

While addressing the media after the post-budget meeting with Finance Minister Nirmala Sitharaman, he said, “Thereafter we announced 25 basis points cut. So, it’s now an entirely 75 basis point cut. We are collecting the data and also you have to keep in mind that right from the month of June, in fact, June 1, the system is more than adequately surplus in liquidity,”

He further said overall the system liquidity is hugely in surplus and if individual banks have liquidity issues, the RBI will provide liquidity support to them.

In a bid to address the liquidity crunch in the sector, the government in the Budget proposed public sector banks (PSBs) to purchase high-rated pooled assets of financially sound Non-banking Financial Companies (NBFCs), amounting to a total of Rs 1 lakh crore during the current financial year.

For this, the government will provide a one time six months’ partial credit guarantee to public sector banks for first loss of up to 10 percent.

The governor said the RBI is monitoring NBFCs based on their size and based on their past repayment behavior.

“We are monitoring their operations very closely and at regular intervals,” he added.

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