Zeebiz Bureau
New Delhi: In an apparent bid to boost credit growth, the country’s central bank on Wednesday asked commercial banks to pass on the lower interest rate benefits to consumers by slashing lending rates.
In a letter written to the commercial banks, the Reserve Bank of India (RBI) asked the lenders why floating rates on home loans were not slashed in proportion with the cut in the repo and reverse repo rates.
The RBI has also threatened to take regulatory action against banks if they failed to respond to its letter.
The latest move of the RBI comes amid speculations that the banking regulator may not wait for the next policy review in April to raise interest rates as inflation was emerging as a major threat to the economic recovery.
The central bank has kept a loose money policy since January 2009 to ensure enough liquidity in the financial system. The reverse and repo rates were cut thrice between January and March.
However, despite drastic cut in the key interest rates, the credit growth did not pick as banks kept high lending rates.
While reviewing its money policy last month, the RBI has lowered the credit growth target for the banking sector for the current year to 16 percent from 18 percent.
First Published: Wednesday, February 10, 2010, 16:44