Indian banks need to raise deposit rates and cut lending rates to help the economy grow at a faster pace, said Duvvuri Subbarao, governor, Reserve Bank of India (RBI).
“To achieve our collective aspiration of double-digit and inclusive growth, we need to raise the level of national savings and channel those savings into investment,” the RBI governor said on Friday at a banking seminar organised by the Indian Banking Association and Central Bank of India.
“This means banks need to raise interest rates offered to depositors and reduce lending rates charged on borrowers.”
This can be achieved by reducing intermediation costs and net interest margins, he said, adding, that net interest margins of banks, which have came down by 0.5% in the last decade to 2.5% now, continue to be higher than their peers in other emerging markets.
“The net interest margin of the Indian banking system is higher than that in other emerging market economies.”
Subbarao also urged banks to improve their efficiency ratio by optimising non-interest expenses, which will in turn enable banks to protect their net interest margins.
He also said that Indian banks are comfortably placed in terms of compliance with the new capital rules or Basel III norms.