Days after rate cut, RBI Governor Malhotra prods bank CEOs to lower costs

RBI Governor Sanjay Malhotra urged banks to lower intermediation costs, improve service quality, and strengthen fraud safeguards, citing faster transmission after recent rate cuts

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Tuesday asked chief executive officers of public- and private-sector banks to lower intermediation costs and bolster operational efficiencies, citing the 125 basis points (bps) policy rate reduction since February.

 

The governor conveyed this in an interaction with bank chiefs, four days after the central bank’s Monetary Policy Committee (MPC) cut the benchmark repo rate by 25 bps to 5.25 per cent, the lowest in three years. One basis point equals 0.01 percentage point.

 

“He (Malhotra) noted that the 125 basis point easing, combined with greater use of technology, should translate into lower intermediation costs and higher efficiency, thereby supporting sustainable growth and deeper financial inclusion,” the RBI said in a statement post the meeting.

 

These interactions form part of the RBI’s ongoing engagement with the senior management of regulated entities. This is the second such meeting steered by Malhotra after he took over as the RBI governor in December last year. The first such round of parleys with lenders was held in January this year. 

 

RBI data on monetary transmission showed that the weighted average domestic term deposit rate of banks has fallen by 102 bps in response to a 100 bps rate cut between February and September while the interest effect on fresh rupee loans was a 73 bps reduction.

 

According to the central bank’s statement, Malhotra also emphasised on better customer service, while urging banks to focus on reducing grievances and strengthening internal systems.

 

During the December policy review, RBI proposed to hold a two-month campaign from 1st January next year with an aim to resolve all grievances pending for more than a month with the RBI Ombudsman.

 

On Tuesday, Malhotra also highlighted the growing risks from digital frauds and called for more robust, intelligence-driven safeguards.

 

“Appreciating banks’ efforts on re-KYC and unclaimed deposits, he encouraged proactive outreach and sustained awareness campaigns. He reaffirmed the Reserve Bank’s consultative approach, referring to recent initiatives in consolidation and simplification of regulations,” the statement added.

 

The participants shared their feedback and perspectives on a wide range of policy, supervisory and operational matters, the statement noted. The interaction with lenders was also attended by RBI’s Deputy Governors T Rabi Sankar, Swaminathan J, Poonam Gupta and S C Murmu, along with the Executive Directors in charge of supervision, regulation, enforcement, and consumer education and financial inclusion.