The Reserve Bank of India (RBI) Governor Shaktikanta Das (pictured) on Wednesday met the chiefs of major public sector banks (PSBs) to get their feedback on transmission of rates. He also asked them to improve coordination for swift resolution of stressed assets.
The meeting focused on credit flow to the ‘productive sectors’ which include micro, small and medium enterprises and non-banking financial companies (NBFCs). The governor discussed the progress on deepening digital payments through focused outreach activities planned by banks to make identified districts in each state and Union Territory digitally enabled.
“There has been some improvement in the banking sector. It remains resilient, even though the current economic conditions may pose certain challenges,” said Das.
The governor urged banks to proactively tackle emerging challenges swiftly, particularly with regard to stressed asset resolution in a coordinated manner, the RBI said in a release.
Das has been meeting PSB chiefs at periodic intervals. The RBI has been nudging banks to pass on rate-cut benefits to consumers, so that there is sufficient credit offtake. He had a similar meeting with bank chiefs in October and discussed transmission and credit delivery to important sectors.
The monetary policy committee (MPC) has so far cut the benchmark policy rates by 135 basis points (bps) since February this year. Against a 135-bps cut by the MPC, in the credit market, the one-year median marginal cost of funds-based lending rate has declined by 49 bps and the weighted average lending rate on fresh rupee loans sanctioned by banks declined by 44 bps.
The MPC last week kept the policy rates unchanged, while it was anticipated that the committee would cut rates to boost growth. But the governor said they wanted to allow some more time for the previous rate cuts to play out. Therefore, the MPC decided to hit ‘pause’.
The governor in his statement during the monetary policy had said, “Going forward, transmission is expected to improve with the introduction of the external benchmark system, as most banks have linked their lending rates to the policy repo rate of the RBI.”
“They wanted to know how things were moving in the resolution of stressed assets and transmission. This included everything like how the resolution is happening. Now, the transmission is happening. Between 40 per cent and 50 per cent of the assets of the banks are linked to the repo rate, so the transmission is happening,” said a PSB chief executive officer who attended the meeting.
The governor also took feedback from bankers on the outlook for restructuring of stressed assets and the recovery from non-performing assets. The RBI has recently initiated insolvency proceedings against mortgage lender Dewan Housing Finance. Also, the new June 7 circular for restructuring of stressed assets was put in place by the RBI for quicker resolution.
On credit delivery to NBFCs, the governor at the MPC meeting last week said the bank credit to NBFCs till the end of November has grown by 26.5 per cent. The RBI has taken measures in the past to ensure greater credit flow.