RBI expects banks to pass on rate cut benefits to customers

Reserve Bank has lowered interest rates by 0.50% since January 2015, but banks are yet to pass on the benefits to borrowers, says Deputy Governor

Reserve Bank of India (RBI) Deputy Governor S S Mundra  on Friday said he expected banks to cut interest rates as the central bank had already lowered policy rates twice in quick succession.

“RBI, in a very short period of time, has cut the repo rate twice. It is expected from the bankers that they pass on the benefits (to consumers),” he said on the sidelines of an event here.

RBI has lowered interest rates by 0.50 per cent since January 2015, but banks are yet to pass on the benefits to borrowers.

The latest cut was on March 4 when RBI reduced the repo rate from 7.75 per cent to 7.50 per cent. It was prompted by inflation remaining low and came within days of Finance Minister Arun Jaitley announcing in the Union Budget that the government is committed to fiscal consolidation.

Meanwhile, banks have said they will wait till RBI's next bi-monthly monetary policy review on April 7 before cutting interest rates.

“Coming April, after seeing RBI monetary policy statement, banks can start considering reduction in the rate... We can reduce anywhere from 10 basis points to 25 basis points,” Bank of India Chairperson V R Iyer had said.  “The transmission will definitely take place... Banks also have to keep asset quality in mind (before passing on the benefit of the rate cut). That is a guiding factor for any bank to reduce lending rate.”