Even though the credit demand is growing at a healthy 14 percent, Reserve Bank of India's Governor Shaktikanta Das said that it is not broad-based.

Addressing the customary press conference after the monetary policy review, Das said that credit growth to the critically important MSME sector remains ‘muted’.

The RBI for the second consecutive time cut the benchmark rate by 0.25 percent that will result in lower cost of borrowing for the banks that are expected to transmit the same to individuals and corporates.

“RBI will continue to watch macroeconomic factors and will act timely on the same,” says Das.

The central bank has also virtually deferred the shift of loans to an external benchmark. Das said that consultation will be held to ensure an effective mechanism for transmission of rates.

The six-member Monetary Policy Committee voted 4:2 in favour of the rate cut at the second policy review.

Earlier this year, RBI cut the benchmark interest rate for loans by 0.25 percent to 6.25 percent. However, only a handful of banks, including SBI, have reduced their rates, by just 0.05 percent. Das said, “The effort of the RBI is to constructively engage with all the regulated entities, including the banks, to ensure the compliance of various regulatory requirements.”

Speaking about the transmission of loan interest rate cuts earlier this year, Das said, "Transmission of rates is very important especially after central bank announces a rate cut.”

Published On : 05-04-2019

Source : SMB STORY