Mumbai: As major banks opt for cutting interest rates on certain categories of loans instead of the base rate, the Reserve Bank today said it would like the lenders to cut the minimum lending rate to better carry forward its monetary policy measures.
”The base rate is supposed to be responsive to the changes in monetary conditions…Reserve Bank would definitely want the responses to be through the base rate,” RBI Deputy Governor Anand Sinha said at an IDBI Bank event here.
He was here to launch the country’s first online platform where retail investors can trade in certificates of deposits.
Sinha added that an RBI committee on interest rates, which is headed by him, is looking into these aspects.
The committee that was supposed to come out with report last month, has made progress and will be submitting it soon, he said.
Replying to a question, Sinha said banks are unable to cut their base rates as per the monetary policy changes, because they carry the burden of fixed rate deposits and fixed costs to service that over a longer-time.
”Banks are not able to respond quickly to the changes in monetary conditions or monetary policy signals because they carry a fixed cost over an extended period of time,” he said, adding, this was a subject of discussion with bankers during deliberations on floating deposit rates.
When asked if the RBI — which has been discussing floating rate deposits but also stressing on fixed rate loans — is concerned over potential asset-liability mismatches, Sinha replied in the affirmative.
”Asset-liability concern, in the long-term, yes,” he said, adding that so far banks have been successful in managing the longer gestation infrastructure projects.
Though, since January, the RBI has cut repo rate by 0.50 per cent and CRR by 1.25 per cent, besides the 1 per cent SLR cut last week, the effect of the same has not been passed on to the customers by banks by lowering interest rates as a whole.
Some banks like State Bank and Union Bank of India, among others, have slashed interest rate on certain loan products like home loans and lending to SMEs, but have not cut the base rate, or the minimum rate of lending.
Sinha evaded a direct reply to a question on whether the spectrum could be taken as a collateral by banks lending to bidding telcos.
”If I recall, we had put some conditions around it. Essentially, these are valuation-related issues, the fact that it should be available to the banks in case there is a default, something like that,” Sinha said.