India’s RBI Encounters Issues in Making Banks Reduce Rates

Many lending companies in India have not implemented lower interest rates as suggested by the country’s central bank. As a result, authorities are compelled to make more room for adjustments in terms of policies. According to The Economic Times, this is to foster economic growth to which an active lending industry contributes.

The Reserve Bank of India (RBI) announced a 25 basis-point reduction to be applied on the repurchase rate, lowering it to 6.25%. Whilst bankers say that this was a start, it was not enough to affect interest rates. This is apparent, especially as data from commercial banks shows that current rates range from 8.15% to 8.55% since January.

 As a form of ‘token’ compliance, many banks have cut down their rates by 10 basis points, according to Federal Bank Ltd. Chief Financial Officer Ashutosh Khajuria. However, Khajuria says that in order to have a more significant impact on the lending rate, the RBI must enforce a 50 basis-point cut. Should trends remain stable, this move can guarantee a significant fall in interest rates as early as April.

Aside from the slow growth rate for loans, bank deposits are also experiencing a slowdown, adding to the numerous obstacles banks are facing right now.

The reduction based on 25 points was done this February during the first committee meeting after Shaktikanta Das assumed the position of RBI’s governor. The move was expected to cut down rates for various loads including mortgages.