Pass on rate cut benefit to borrowers: FM tells banks

Says that even though RBI has cut repo rate by 125 basis points since early 2012, commercial banks have cut rates by only 30 basis points

Seeking to push investment to boost growth, Finance Minister P Chidambaram today asked banks to pass on the RBI's rate cut benefit to both retail and corporate borrowers.

"In fact, the RBI has already cut the repo rate by 125 basis points since early 2012, with commercial banks cutting rates by only 30 basis points over the period," he said at the AGM of Indian Banks' Association here.

"As CPI inflation and deposit rates fall, I would urge commercial banks to translate monetary policy to retail borrowers and firms through lower lending rates," he said.

Observing that food inflation is "still elevated", the Finance Minister said he hoped it will ease with arrival of Rabi crops.

"We hope that it will come down further as the full Rabi crops arrive in the market...As CPI inflation falls, I believe people will start having more disposable income," he said.

Chidambaram said with higher real interest rate, people will be willing to deposit more in the banks.

This will allow banks to moderate deposit rates and pass on the savings through lower lending rates, he added.

The RBI expects non-food credit growth to pick up marginally to 15% in 2013-14 from 14% achieved in the previous fiscal and deposit mobilisation to be flat at 14%.

The central bank reduced the key policy rate thrice by 0.25% each so far in 2013 in its effort to boost sagging growth which hit a decade low of 5% in 2012-13.