Subbarao said he hopes to evoke a positive response from banks and the lending rates will go down since there is credit flow for productive sector
Chhaproh (Himachal Pradesh): Reserve Bank of India (RBI) Governor D Subbarao expressed hope that banks would lower their lending rate in response to the recent cut in the cash reserve ratio (CRR)-- the percentage of deposits banks have to keep with the central bank, reports PTI.
"We hope that there will be response from banks and the new rates will go down so that there is credit flow for productive sector," Subbarao, who was in north India in connection with an outreach programme, said.
Following the CRR cut by the Reserve Bank, the country's largest bank State Bank of India (SBI) reduced the minimum lending rate by 0.25% last week.
With the reduction, the base rate of the bank came down to 9.75%, the lowest in the banking sector.
It is a challenge for banks to keep the lending rates low, Subbarao said.
Last week, Reserve Bank reduced CRR by 0.25% but refrained from reducing lending rates in view of high inflation.
The central bank's decision released Rs17,000 crore of primary liquidity into the system.
The liquidity infusion, RBI had said, would ensure adequate flow of credit to productive sectors of the economy.
Following the cut, CRR will come down to 4.5% while the repo rate, at which the central bank lends to the banks, would remain unchanged at 8%.