Rajan sees red on bankers' reluctance to pass on cheap money

Continuing to vent his anger over bankers' reluctance to pass on benefits of lower interest rates and easy liquidity positions to borrowers, outgoing RBI Governor Raghuram Rajan said Tuesday the central bank will soon revise the marginal cost of fund-based lending rate framework to help fasten up process of policy transmission.

Complaining that banks have passed benefits only in a "modest" measure to borrowers, Rajan said a pick-up in credit demand that shall follow the economic recovery and competition for corporate loans after the ongoing balance sheet clean-up by the state-run lenders, will ensure softer lending rates.

Rajan charged bankers with inventing newer alibi for delaying the rate cuts and pointed out that concerns over the FCNR(B) redemptions, despite RBI's public assurance of making it non-disruptive, are the latest one in a series.

"Earlier, some bankers said it was lack of liquidity that was holding the rates high. Now, I hear from some that it is the fear of FCNR redemptions that is making them reluctant to cut rates. I have a suspicion that some new concern will crop up once FCNR redemptions are behind us," Rajan said.

"We would be happier if there was more transmission," he said, adding that the RBI is sensitive to "some of the difficulties" which banks have to face following the balance sheet clean-up.

Rajan, who switched the stance of the monetary policy to be accommodative starting January 2015 and has effected rate cuts of 1.50 per cent till now, has been complaining for long about banks' reluctance to pass on the cheaper money to borrowers.