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Why monetary transmission is not easy in India

In a growing economy, the growth rate of demand for credit is more than the growth rate of deposits

Reserve Bank of India
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FILE PHOTO: A security personnel member stands guard at the entrance of the Reserve Bank of India (RBI) headquarters in Mumbai | Photo: Reuters

Hasmukh Adhia
The Reserve Bank of India has always been concerned about the fact that any reduction in the repo rate is not proportionately transmitted in the interest rates for consumers and corporates. The reasons for this, according to this author, are very clear.

The formula for Marginal Cost of Lending Rates (MCLR) is prescribed by the Reserve Bank of India (RBI). There are three components of MCLR, viz. Marginal Cost of Borrowings, Return on Net Worth and Operating Costs. Marginal Cost of Borrowings comprises weighted average of the card rates on deposits and actual weighted average cost of borrowings as on
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First Published: May 28 2019 | 9:11 PM IST

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