RBI Governor to meet bank CEOs on Thursday on rate transmission

Reserve Bank of India Governor Shaktikanta Das will meet PSU and private sector banks CEOs and MDs on Thursday to discuss rate transmission and persuade them to pass on the advantages after taking note of the non-passing of the benefits of lower interest rates to the consumers following a key policy rate cut by it recently.

"I will meet the private and public sector banks CEOs and MDs on February 21 over this because transmission of monetary policy decisions is important. We will see what needs to be done then," Das said earlier this week during the RBI's Central Board meeting.

Earlier this month, the RBI cut the benchmark interest rate by 0.25 per cent to 6.25 per cent.

But PSU and private banks have not been passing on the resultant benefits of these rate cuts and in fact passed less than 5 per cent cut to the customers.

The Governor said that the RBI has received a lot of comments on external benchmarks and it was currently examining them.

The RBI is mandated to see whether banks are cutting lending rates in line with repo rates.

In fact for this purpose, the RBI will start linking interest rates to external benchmarks replacing the Marginal Cost of Funds based Lending Rate (MCLR).

The home loan borrowers have often complained about the opacity of the interest rate fixing mechanism which allows banks not to pass rate cut benefits in lowering home and auto loan rates.

As and when the external benchmark rate changes, it will reflect in the change in interest rate of the loan as well.

The RBI had earlier proposed that from April 1, 2019, banks would have to use external benchmarks instead of the present system of internal benchmarks -- Prime Lending Rate, Benchmark Prime Lending Rate, Base Rate and MCLR to ascertain the lending rates.

--IANS

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