Several factors still hamper monetary transmission at bank rates: RBI

Although the transmission of deposit and credit rates has improved significantly in recent times, several factors continue to hamper efficient monetary transmission at these bank rates, the Reserve Bank of India (RBI) said.

The RBI Bulletin for July 2021 noted that the central bank has made several attempts to improve the efficiency of money transmission by refining the process of setting interest rates by banks.

Noting that recent developments regarding pass-through at lending and lending rates have improved, he said: “However, several factors continue to hamper the transmission of money at bank lending and lending rates.”

Factors include the mismatch of assets and liabilities of banks, competitive pressure for small savings plans and the quality of assets of regular commercial banks.

The internal benchmark for loan pricing and the heterogeneous pricing methodology of NBFCs are also factors that hamper efficient rate transmission.

The Bulletin said that money transmission in the current easing cycle, so far, has been complete in all segments of the money market and the corporate bond market, mainly due to the measures to increase liquidity. , including unconventional measures, taken by the RBI.

In response to the cumulative reduction in the policy repo rate of 250 basis points, the one-year median marginal cost of the SCB fund-based lending rate declined by 155 basis points between February 2019 and June 2021.


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(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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