Cut in small savings rate may lead to lower lending rates:RBI

The Reserve Bank today said banks may cut their lending rates further with the lowering of interest rate on small savings schemes by the government.
"The government is reviewing the small savings rate and once this rate is lowered, further transmission of the rate can happen through banks," RBI Deputy Governor Urjit Patel said here.
Since January this year, RBI has reduced the key repo rate, at which the central bank lends to banks, by 1.25 per cent to the current level of 6.75 per cent.
However, banks have not passed the entire benefit to their customers.
Of the 75 basis point rate cuts before September policy review, banks have passed on 43 basis points on a weighted average basis, Patel told reporters after an RBI board meeting here.

RBI slashed its benchmark short-term lending (repo) rate by 0.50 per cent in its fourth bi-monthly monetary policy review on September 29. Following this most of the banks cut their benchmark lending rate by 0.25 per cent.

However, only SBI reduced its benchmark lending rate by 0.40 per cent.
"Passing on of rate cuts on new loans is better than old ones. In the capital market, the pass through is one-to-one," Patel said.
Earlier this month, the Finance Ministry had said it would review the small savings schemes, which includes PPF and post office deposits.
There has been a call from bankers to lower interest rate on small savings as a high rate on such schemes run by the government makes fixed deposits of banks uncompetitive.

With small saving deposits commanding a rate of 8.7-9.3 per cent, banks have been reluctant to transmit the entire policy rate reduction by RBI to borrowers.
They want to keep their deposit rates attractive to match those in small saving schemes, popular among masses.