The Reserve Bank of India (RBI) on Wednesday further nudged reluctant banks to cut lending and deposit rates, to try and accelerate credit growth and support the sagging economy.
The RBI reduced the repo rate (the rate at which banks borrow from it) by 50 basis points (one basis point is one hundredth of one per cent) to 5 per cent, and the reverse repo rate (the rate at which banks park excess funds with it) by 50 basis points to 3.5 per cent.
RBI has cut repo rate by a total of 350 basis points since October, 2008 and the reverse repo rate by 200 basis points.
“It is expected that the reduction in the policy interest rates will further encourage banks to provide credit for productive purposes at viable interest rates. The Reserve Bank on its part would continue to maintain ample liquidity in the system,” RBI said in a statement.
Only 11 banks cut their benchmark prime lending rates by 25-125 basis points since the RBI reviewed its monetary policy in the last week of January, 2009. RBI Governor D Subbarao had last week urged chiefs of large banks to reduce lending and deposit rates.
N S Venkatesh, managing director and CEO of IDBI Gilts, a dealer in government bonds, said: “RBI wants banks to cut rates and has shown its determination by this cut. Now the banks will have to reciprocate and I am sure they will immediately cut (interest rates by) at least 50 bps.”