RBI asks banks to ease lending rates

26 March 2009

The Reserve Bank today asked commercial banks to take the signal from the policy rates reduction to adjust their deposit and lending rates in order to keep credit flowing to productive sectors.

The RBI is in touch with commercial banks to address the issue of still-high lending rates despite the central bank cutting policy rates, RBI governor D Subbarao said at a CII conference. ''We are talking to banks to understand what their perception is," he added.

The governor acknowledged that interest rates in India should come down for the economy to become competitive.

''Policy rates have to be transmitted to lending rates by banks. We are looking into the transmission mechanism," Subbarao said.

The Indian Banks' Association, meanwhile, said banks could not lower their lending and deposit rates under the current scenario. "There is no more headroom for banks to cut their prime lending rates (PLR) and deposit rates in the near future," IBA chairman T S Narayanasami said.

Subbarao asked banks to utilise RBI's special refinance windows to facilitate increased flow of credit to the micro, small and medium enterprises sector, housing sector and export.