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Banks should fully pass on previous rate cuts: India Inc

With RBI Governor Raghuram Rajan keeping the repo rate unchanged on Tuesday, India Inc Tuesday called upon banks to fully transmit the rate cuts effected so far this year to revive weak rural demand and investments.

New Delhi: With RBI Governor Raghuram Rajan keeping the repo rate unchanged on Tuesday, India Inc Tuesday called upon banks to fully transmit the rate cuts effected so far this year to revive weak rural demand and investments.

Rajan left the key policy rate steady at 6.75 percent at the Reserve Bank's fifth bi-monthly policy review of 2015-16 on Tuesday. The repo is the benchmark lending rate at which RBI lends to commercial banks.

ALSO READ: RBI monetary policy: Raghuram Rajan retains key rates, nudges banks to pass on earlier cuts

Rajan also expressed anguish at the banks' reluctance to pass on benefits of the earlier rate cuts, saying the median decrease in base rate has only been 0.60 percent as against RBI's 1.25 percent reduction in the repo rate since January.

"We would like banks to pass on full benefits in the form of lower lending rates for both consumers and investors. This is important for revving up overall demand in the economy, which is still far from being robust," Ficci Secretary General A Didar Singh said.

"Of particular concern is demand in rural areas that has weakened on account of deficient monsoons."

ALSO READ: More room for banks to pass on rate cuts: RBI

The status quo was widely expected as retail inflation rose to a four-month high of 5 percent in October and emerging markets like India brace for capital outflows on account of a possible US Fed rate hike later this month.

"The focus has now shifted to transmission of lower policy rates to lending rates. Banks need to be ready to finance pick-up in credit growth and RBI should ensure high level of non-performing assets do not constrain banks from financing higher growth," CII DG Chandrajit Banerjee said.

The cash reserve ratio (CRR), or the amount of deposits banks park with RBI, has also been unchanged at 4 percent.

Assocham President Sunil Kanoria said the ball is now in the court of the government to see to it that inflation is kept low through better food management.

He also nudged banks to transmit the lower lending rate to borrowers.

The Reserve Bank noted that early signs of a turnaround are visible in some export sectors such as ready-made garments, pharmaceuticals and electronics despite persistent weakness in global trade.

"At a time when key markets of the US, Europe and emerging economies are showing consumer resistance, some out-of-the-box solutions are needed to help exports, particularly in engineering goods, which are produced pre-dominantly by SMEs and are highly labour intensive," engineering exporters' body EEPC India T S Bhasin said.

India's exports remained in the negative territory for the 11th month in a row by registering a decline of 17.53 percent in October to USD 21.35 billion.

Exports contracted due to a steep decline in shipments of petroleum products (57 percent), iron ore (85.5 percent), engineering (11.65 percent) and gems and jewellery (12.84 percent) amid a global demand slump.

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