RBI Governor Berates PSB Heads for Low Policy Rate Transmission

Reserve Bank governor Shaktikanta Das on Friday met the heads of public sector banks and reiterated his concerns over the "less-than-desired-level" of policy rate transmission by lenders.

Acknowledging the "discernible improvements in the banking sector," Das pointed out that there still are several challenges to be addressed, particularly in regard to stressed asset resolution and credit flows to the needy sectors.

'Less-Than-Desired-Level of Transmission'

"During the meeting, issues such as the less-than- desired-level of transmission of policy rates, credit and deposit growth amidst a slowing economy and the need for credit flow to the needy sectors as well as the urgency for a robust risk assessment and monitoring standards were discussed," the central bank said in a statement.

So far in 2019, the central bank has cut the repo rate by 75 basis points to 5.75 percent in three successive rate actions. However, banks have not yet fully passed on the same to the borrowers.

At the June policy announcement, Das had said banks had passed on only 21 bps of the 50 bps rate cuts. Since then, banks like SBI, Corporation Bank, Oriental Bank of Commerce, Bank of Maharashtra and IDBI Bank, among other have lowered their lending rates by 5-10 bps.

Improving Recovery Efforts

The meeting also discussed ways to improve recovery efforts, giving impetus to resolution of stressed assets facilitated by the 7 June circular, and strengthening internal control mechanisms for improved fraud risk management.

Das also spoke about the impact of the post-budget initiatives to address the credit crisis being faced by NBFCs and the role that banks can play in mitigating the same.

The governor also underlined the importance of expanding and deepening digital payments ecosystem in line with the recommendations of the Nandan Nilekani panel report on deepening the digital payments system, and also the RBI's payment system vision document 2021.

"On the suggestion of the governor, it was agreed that banks will identify one district in each state to make it 100 percent digitally enabled within a one-year timeframe, in close collaboration with everyone stakeholder," the statement said.