Mumbai: The Reserve Bank of India (RBI) has expressed concern over the level of banks' lending rates and called on them to lower it. It has also urged banks to step up lending to small and medium-sized enterprises and the farm sector.
"Persistence of the large gap between lending rates and deposit rates remains a matter of concern," said the RBI annual report for 2003-04.
Data in the annual report showed deposit rates fell by up to 75 basis points between April 2003 and January 2004 while prime lending rates fell only by up to 50 basis points. One basis point is one-hundredth of a percentage point.
"With almost all the structural rigidities having been reduced, bank-level efforts are now necessary so that the benefits of low-cost deposits are passed on to the customers," it said.
Further, banks needed to step up the flow of credit to "relatively disadvantaged sections of borrowers, including small and medium enterprises and the agricultural sector," it said.
The availability of credit was often more important than its price to many borrowers in these sectors, the RBI said.
The central bank's benchmark bank rate, used by commercial banks to price their loans, was cut by 200 basis points over the past three-and-a-half years to a three-decade low of 6 per cent.
In turn, commercial banks reduced their prime lending rates but many borrowers complain that only big, top-rated corporates are enjoying the benefits of lower interest rates.