Mumbai - Effective transmission of the benefits of policy rate cuts by banks to their customers is the key to achieving non-inflationary growth, RBI Governor Urjit R. Patel has said.
According to Patel, while the transmission has improved, there was still some space for banks to cut their lending rates, especially on the existing loan portfolios.
By the central government's own formula effective from April 1, 2016, there was scope for administered interest rates to be reduced, he said while speaking at the sixth Monetary Policy Committee (MPC) meeting held here on August 1 and 2, the minutes of which the Reserve Bank of India (RBI) released on August 16.
"Credit growth has also been low, partly because of risk aversion among banks on account of their stressed assets position. Resolution of stressed balance sheets of banks, therefore, will remain important for reviving credit demand and the investment cycle," the RBI chief said.
The meeting chaired by Patel was attended by all members -- Chetan Ghate, Professor, Indian Statistical Institute; Pami Dua, Director, Delhi School of Economics; Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad; Michael Debabrata Patra, Executive Director (RBI officer nominated by Central Board under Section 45ZB(2)(c) of the RBI Act, 1934); and Viral V. Acharya, Deputy Governor in charge of monetary policy.
The MPC meeting cut the the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.25% to 6.0% with immediate effect.
Consequently, the reverse repo rate under the LAF stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.