RBI Governor Raghuram Rajan’s repeated nudge to banks to pass on the rate-cut benefits seems to be falling on deaf ears, as the transmission has been less than one-fifth in some cases, government data showed on Wednesday.
The Reserve Bank has lowered its policy rate by 1.25 percentage points so far in 2015, while Rajan has been consistently chiding banks on their slow transmission of rate cuts to borrowers.
Interestingly, public sector banks are lagging domestic private sector lenders in terms of reduction in base lending rates.
Overseas banks have performed much better with rate cuts of up to 1.05 percentage points so far in 2015, minister of state for finance Jayant Sinha said in a written reply to a question in the Rajya Sabha.
The lowest reduction of 0.20 percentage points has also been made by a foreign lender.
While 27 public sector banks have reduced base rate in a range of 0.30 -0.70 percentage points; the 16 private sector lenders have introduced cuts of 0.25-0.75 percentage points. There are 26 foreign banks in the country.
RBI reduced its repo rate by 0.75 percentage points in three like phases on January 15, March 4 and June 2. There was a further 0.5 percentage point cut on September 29. The repo rate now stands at 6.75%.
On Tuesday, Rajan had said lenders on an average have only passed on less than half of the total reduction made by RBI in 2015, or about 60 basis points.