RBI hopes banks are more effective in passing on rate cut this time

NEW DELHI: The Reserve Bank of India (RBI) on Wednesday expressed hope that transmission of lower interest rate through banks will be more effective this time. RBI had cut repo rate, the key policy rate, a day earlier by 25 basis points or 0.25 percentage points to 6.5%, the lowest in the past five years.

“There is a holistic view this time, there is a rate cut, there is liquidity framework, and Marginal Cost of Funds based Lending Rate ( MCLR) has also become operational from April 1. We are quite confident that with combination of all these factors transmission would be much more effective,” said RBI deputy governor SS Mundra.

It will be unfair to say nothing has been transmitted, Mundra said. “There had been transmission, may be slightly less than the expectations,” he said. Mundra also cautioned against jumping to conclusions with regard to Panama Papers. “It would be too hasty to jump to a conclusion that everything is illegitimate or everything is legitimate.

There would be all kind of cases once the details are available; we will look into the evidence along with the team. Then it would be fair to reach to a conclusion,” he said.

To help micro, small and medium enterprises ( MSMEs), Mundra said RBI will lay down a framework by September for accreditation of credit counsellors who can act as facilitators for entrepreneurs to access the formal financial system with greater ease.

“Credit counsellors will also assist MSMEs in preparing project reports in a professional manner which would, in turn, help banks make more informed credit decisions,” he said.