Banks should cut lending rates: Subbarao

Reserve Bank of India governor D Subbarao on Tuesday expressed the hope that banks would lower their lending rate in response to last week's 0.25 per cent cut in the cash reserve ratio (CRR) - the proportion of total deposits that banks have to park with the central bank.

"We hope that there will be response from banks and the rates will go down so that there is credit flow for productive industries," Subbarao said in Chhaproh, Himachal Pradesh, where he was to support an outreach programme to make the rural people aware of banking services.

Following the CRR cut by the Reserve Bank of India, the country's largest lender, State Bank of India, reduced the minimum lending rate by 0.25 per cent last week.

With the reduction, the base rate of the bank came down to 9.75 per cent, the lowest in the banking sector. But other banks are yet to follow suit.
 
''It is a challenge for banks to keep the lending rates low,'' Subbarao said.

The RBI decision to cut CRR released Rs17,000 crore of primary liquidity into the system.

Asked about government's recent decision to allow foreign direct investment (FDI) in multi-brand retail as well as in airlines, Subbarao said, "Those are very welcome measures, much needed, I believe. It will also get us foreign investment which is very necessary for improving production and the economy."