The government is examining linking small savings interest rates to market interest rates, Rajan said
The exchange rates for the yen against the rupee were quoted at 53.90 per 100 yens
Mumbai: Noting that the banks have passed on less than half or 60 basis points of the 125 basis points cut by the RBI since January this year, the RBI on Tuesday hoped the banks would pass on the benefits of the rate cut.
In a press conference after announcing the fifth bi-monthly monetary policy statement in which key rates were unchanged RBI governor Raghuram Rajan expressed concern over the lag in transmission of policy rates and said they would issue guidelines this week to determine base rates on a new methodology based on the marginal cost of funds.
“There is a particular way to calculate the base rate now. And our worry is that it should not come in the way of banks to pass through lower lending rates to customers,” he said explaining the rationale behind the introduction of the marginal cost of pricing (MCP).
“The intent is that banks would be able to make incremental loans on the MCP while historical or legacy loans will be on the base rate. That’s the intent as we go forward,” he said. The base rate is the minimum benchmark rate below which a bank cannot lend.
He this would also allow them to pay more attention to asset liability management and the market will become more vibrant. In addition the reduction in the small savings rates like PPF and post office deposit is also going to bring down cost of fund for banks. “The government is examining linking small savings interest rates to market interest rates,” Dr Rajan said.
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( Source : deccan chronicle )
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