According to RBI deputy governor Chakrabarty reduction in policy rates will not serve any purpose unless banks bring down their spreads and pass on the benefits to borrowers
New Delhi: Banks are not passing on the benefit of cut in policy rates to the borrowers, Reserve Bank of India (RBI) Deputy Governor Dr KC Chakrabarty said while asking lenders to undertake reforms and bring down their operation costs, reports PTI.
"Within the interest rate structure, if banks increase their efficiency, interest rates will come down. What we call operational efficiency of the banks and that is one thing that should happen", he said, while talking to reporters on the sidelines of a function.
Reduction in policy rates, he said, will not serve any purpose unless the banks bring down their spreads and pass on the benefits to borrowers.
"It (interest rate cut) will not happen if you don't reduce your cost. If the spread does not come down people will not get the benefit. Unless within the institution there is reform, you will not be able to derive the benefit of policy reform", the RBI Deputy Chief said.
Reforms were not taking place at individual level, Chakrabarty said, adding "at one stage cash reserve ratio (CRR) was 25%, statutory liquidity ratio (SLR) was 40%. Now SLR has come down to 23%, CRR is 4.5%. People say that it should be abolished. But has this benefit of reduction gone to the people?"
He regretted that the lending rates of banks have not come down in tandem with reduction in the CRR and SLR. On the other hand they have gone up, he added.
"Today repo rate is 8%, CRR is 4.5%, inflation 9%, SLR 23% and prime lending rate (PLR) of banks on an average is 1% higher (than what it was in September 2008)", he added.
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