Transmission of recent rate cut to be more effective: Mundra

A day after the Reserve Bank cut policy rate by 0.25 per cent, Deputy Governor S S Mundra today expressed hope that transmission of lower interest rate through banks will be more effective this time.

RBI cut benchmark lending rate yesterday to 6.5 per cent, lowest in the last 5 years.

"There is a holistic view this time, there is a rate cut, there is liquidity framework, and Marginal Cost of Funds based Lending Rate (MCLR) has also become operational from April 1. We are quite confident that with combination of all these factors transmission would be much more effective," he said on the sidelines of an Assocham event here.

He added however that it would be unfair to say nothing has been transmitted. "There had been transmission, may be slightly less than the expectations."

RBI Governor Raghuram Rajan had said yesterday that the 0.25 per cent rate cut should be looked at in conjunction with the new loan pricing method that has already resulted in lending rates coming down by up to 0.50 per cent.

"Don't look at the monetary policy review as 25 bps (cut alone). Look at the composite of measures (marginal cost of funding-based lending rate methods effective April 1), they all add up. Borrowing rates are coming down significantly in the economy," Rajan had said while unveiling the first bi-monthly monetary policy of the current fiscal, which started this month.

He had further said that the slew of liquidity measures announced will lead to a better transmission of the policy into actual lending rate cuts by the banks.

To help micro, small and medium enterprises (MSMEs), Mundra said RBI will lay down a framework by September 2016 for accreditation of credit counsellors who can act as facilitators for entrepreneurs to access the formal financial system with greater ease and flexibility.

"Credit counsellors will also assist MSMEs in preparing project reports in a professional manner which would, in turn, help banks make more informed credit decisions," he said.
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Mundra further said that the Reserve Bank is taking a number of steps to ensure timely credit availability as also improving cash flow to the MSMEs which stand as the "beacon of hope" in an otherwise difficult economic environment.

He said RBI is in active discussions with the government, and other key stakeholders for launching an electronic platform for online application of loans, tracking of the status of the application with the help of seamless availability of key information on credit worthiness and guarantee.

To be known as Udyami portal, it will have crucial links with several other related portals, eventually making life easier for the entrepreneurs and fixing responsibility of the banks.

Besides, he said, RBI has issued licences to three entities for discounting of trade receivables of the MSMEs from the large corporates including the public sector enterprises.

The government has also been approached to provide a legislative back up to the process, he said.

Speaking at the event MSME Secretary K K Jalan said banks need make sanctioning of loans more efficient for such entrepreneurs.

The feedback given to the government suggests that branch managers take as much as 8-9 months to process the application of the micro and small enterprises, Jalan said.

He also suggested setting up of MSME committees at the board levels of the banks for overseeing the timely disbursal of credit to the sector, which is so vital to the Indian economy.

SIDBI Chairman and Managing Director Kshatrapati Shivaji said the e-portal 'Standupmitra.In launched by Prime Minister Narendra Modi yesterday would be a game-changer for the MSMEs in terms of credit availability, other statutory sanctions to the sector, wherein the applications would be tracked not only by the loan seekers but the higher-ups in different departments and the banks, including the RBI.