RBI Governor asks private banks to pass on rate cut benefits faster

RBI is widely expected to go in for a 50 basis points rate cut at its review next week

Reserve Bank of India (RBI) Governor Shaktikanta Das has exhorted private banks to pass on its policy rate cuts faster, even as he sought their views on various sectors of the economy. 

Senior bankers also indicated that the central bank’s policy review to be held on August 7 may detail the flight path for faster transmission of lower interest rates. The RBI is widely expected to go in for a 50 basis points (bps) rate cut at its review next week. 

At a meeting with a dozen chief executive officers (CEOs) of state-run banks as well as private banks in Mumbai on Friday, Das was of the view that they should follow the example set by state-run banks, especially State bank of India (SBI), for better transmission of policy rate cuts to borrowers. It was also reiterated that this pass-through should be generous, and they should lend more as there is adequate liquidity in the system. 

Effective August 1, the SBI cut the interest offered on time deposits of up to 179 days by 50-75 basis points (bps); and by up to 20 bps in the retail and 35 bps in the wholesale segment (~2 crore and above). Private banks had also cut their deposit rates ahead of the SBI’s move, which was followed by other state-run banks. However, this was only to the extent of 25 bps cut across tenors. 

The fact that the three big private banks — HDFC Bank, ICICI Bank and Axis Bank — now lend more than some of the larger state-run banks makes these banks key players on the credit growth front going ahead. 

In the run-up to the meeting held on Friday, private banks were of the view that customer-facing interest rates had not come down significantly due to legacy bad loans and capital woes. 

The meeting with private bank CEOs was to be held on August 25, but had been rescheduled. The interaction with private bank CEOs was the second with private sector banks after Das took charge at the RBI on December 12 last year. In the previous discussions with these banks on December 27, liquidity and the flow of credit to small- and medium-businesses had figured majorly. 

Be generous

• Asks private banks to follow the lead taken by the State Bank of India

• Says both deposit and lending rates of private banks should come off much sharper

• Takes on board views of private banks CEOs on credit stress related issues