Notion that banks’ credit cost not fallen is nonsense: RBI’s Rajan

• Reserve Bank of India (RBI) governor Raghuram Rajan attends a news conference after the announcement of the first bi-monthly monetary policy for year 2015-16 at the RBI headquarters in Mumbai on April 7, 2015. India`s central bank kept interest rates on hold April 7, saying most commercial lenders have yet to pass on two previous cuts to customers in Asia`s third largest economy. AFP photo

Severely critical of banks not passing interest rate cut to borrowers, RBI Governor Raghuram Rajan today said it was “nonsense” to assume that cost of funds has not fallen and nudged them to reduce rates.

He further said that sooner the banks cut rate the better it would be for the economy.

“We are not looking for a specific number (on the bank rate cuts) and saying unless this happens, nothing more will happen. But we want to facilitate the process of transmission.

“I do not see an environment where credit growth is tepid, banks are sitting on money and their marginal cost of funding (has) fallen, the notion that it hasn’t fallen is nonsense, it has fallen,” Rajan said.

He was referring to the reluctance of banks to pass on the benefit of 0.50 per cent rate cut announced by the central bank since January. The RBI lends to banks at 7.5%.

“Given that there has been very little transmission from rate cut so far… We are waiting to see transmission take place… I have no doubt that this will happen.

via NorthEast Calling http://ift.tt/1HL9y6d