State Bank of India (SBI) Chairman Rajnish Kumar said on Saturday that linking rates of bank deposits for Rs 1 lakh and above with the Reserve Bank of India's repo rate will speed up monetary transmission process.
Repo rate refers to the rate at which commercial banks borrow money from the RBI in case of shortage of funds.
He said the move will to a large extent speed up the monetary transmission process -- which is banks passing on the rate cuts that the RBI announces to their borrowers without much delays.
Kumar said the issue was discussed at length in the Asset Liability Committee (ALCO). This is the only way where the bank can meet the requirement which RBI has expressed from time to time that transmission should happen.
The existing guideline itself provides linking loans to the marginal cost of funds based lending rate (MCLR) or to external benchmark.
"All the working capital loan are theoretically are payable on demand. These loans will be continued to be linked with the MCLR," said Kumar.
Banks have in the past maintained that on liabilities side, there is not enough room or flexibility because the liabilities structure is very rigid.
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