RBI monetary policy review: Bad loans limit banks from passing on rate cuts

With rising non-performing assets (NPAs), the country’s banking system finds itself unable to pass on the benefits of an easing monetary policy to its customers, states the Reserve Bank of India (RBI) in its first bi-monthly monetary policy report for financial year 2018-19. 

The NPA problem has had an impact on monetary transmission, as banks charge higher premiums on loans despite benefitting from a consistent regime of low-cost funding.

Monetary policy transmission refers to the process by which asset prices and general economic conditions are affected by monetary policy decisions. For example, if the central bank cuts the repo rate