With few banks reducing interest rates after a repo rate cut earlier this month, RBI Governor Shaktikanta Das Monday said he will meet heads of public and private sector banks this week to discuss the transmission of interest rate cuts to borrowers.
The transmission of monetary policy decisions is important in the economy, he said in a press conference after Finance Minister Arun Jaitley addressed the central bank board.
"Transmission of rates is very important especially after central bank announces a rate cut. It's already stated in our post MPC (Monetary Policy Committee) conference. I am having an interaction with CEOs and MDs of banks, both public and private sector, on February 21," Das said.
In a surprise move on February 7, the RBI cut its repo rate - the rate at which it lends short-term money to banks - by 25 basis points to 6.25 per cent to support growth, and changed the monetary policy stance from calibrated tightening to neutral.
With inflation under control, the government and the RBI have signalled a need to lower real interest rates in the economy to support growth.
Despite the RBI cutting its key policy rate along with the change in its stance, only a handful of banks, including State Bank of India, have reduced their rates only by 5 basis points. While most interest rates in India are market determined, the central bank can nudge banks towards better transmission as overall credit costs come down in the economy.
Das said some improvement was visible in credit flow in the economy but it was not across the board. "The aggregate flow of finance and credit to commercial sector has shown some improvement but it is not broad-based. It is not flowing in various sectors the way it should be," he said.