Competition will result in banks passing on rate cut to consumers; not RBI interference: Raghuram Rajan

Zee Media Bureau

New Delhi: The banking sector struggling with bad loans is not expected to lower interest rates anytime in the near future, as banks have to clean up their balance sheets before lowering the interest rates, said RBI Governor Raghuram Rajan.

"We do not want to interfere in the contractual process( with banks), it will create all sorts of difficulties. Ultimately it is the competition that will set off the process. The healthy banks will start the process, added the RBI Governor. 

While RBI has maintained the status quo on the lending rate to banks on inflation concerns, the Governor said that the the new benchmark lending rate- Marginal Cost of Lending Rate- introduced from April this year to improve transmission-- of rates cut to consumers --is still in progress.

Though RBI Governor admitted that there is more room for banks to pass on the rate cut to consumers as “deposit growth has picked up”. 

Private and public sector banks have come under criticism for not passing on the rate cut when RBI cuts the lending or repo rate, but quickly increase the interest rates in case of a spike in repo rate.