Transmission of recent rate cut to be more effective: Mundra

A day after the Reserve Bank cut policy rate by 0.25 percent, Deputy Governor S S Mundra today expressed hope that transmission of lower interest rate through banks will be more effective this time.

New Delhi: A day after the Reserve Bank cut policy rate by 0.25 percent, Deputy Governor S S Mundra on Wednesday expressed hope that transmission of lower interest rate through banks will be more effective this time.

RBI cut benchmark lending rate yesterday to 6.5 percent, lowest in the last 5 years.

"There is a holistic view this time, there is a rate cut, there is liquidity framework, and Marginal Cost of Funds based Lending Rate (MCLR) has also become operational from April 1. We are quite confident that with combination of all these factors transmission would be much more effective," he said on the sidelines of an Assocham event here.

He added however that it would be unfair to say nothing has been transmitted. "There had been transmission, may be slightly less than the expectations."

RBI Governor Raghuram Rajan had said yesterday that the 0.25 percent rate cut should be looked at in conjunction with the new loan pricing method that has already resulted in lending rates coming down by up to 0.50 percent.

"Don't look at the monetary policy review as 25 bps (cut alone). Look at the composite of measures (marginal cost of funding-based lending rate methods effective April 1), they all add up. Borrowing rates are coming down significantly in the economy," Rajan had said while unveiling the first bi-monthly monetary policy of the current fiscal, which started this month.

He had further said that the slew of liquidity measures announced will lead to a better transmission of the policy into actual lending rate cuts by the banks.

To help micro, small and medium enterprises (MSMEs), Mundra said RBI will lay down a framework by September 2016 for accreditation of credit counsellors who can act as facilitators for entrepreneurs to access the formal financial system with greater ease and flexibility.

"Credit counsellors will also assist MSMEs in preparing project reports in a professional manner which would, in turn, help banks make more informed credit decisions," he said.