RBI Governor Raghuram Rajan said there is a need for banks to cut their lending rates anticipating the benefits which will be accruing from the central bank's rate cuts, reported PTI.
"I think there is something to be said for the fact of the slow pace of transmission, that some front loading by the banks themselves may be useful," he said speaking at the second SBI economics and banking conference.
The Reserve Bank has been vociferously asking banks to cut their rates and transmit the benefits to end borrowers ever since it started reducing rates this year. It has flagged transmission of previous actions as one of the pre-requisites for further cuts.
According to RBI, banks have cut by an average of 0.30 per cent as against its 0.75 per cent cut in the key lending rate in 2015.
Bankers say that deposits, which decide its cost of funds and are contracted at higher rates, take time to reprice and hence, it takes time to pass on the benefits to borrowers.
Speaking on the sidelines of the same event, ICICI Bank's chief executive and managing director Chanda Kochhar said, " A 75 bps cut translates into 40-45 bps cut in cost of funds for banks. You've already seen a 30 bps cut. Transmission will never be a one-is-to-one correlation with monetary policy rates."
The government and the industry feel that a rate cut can help give a boost to the sagging economic growth and will also help the sentiment.