Millennium Post

Banks not passing on CRR cut benefits to their consumers: RBI

Banks are not passing on the benefit of cut in policy rates to the borrowers, Reserve Bank deputy governor K C Chakrabarty said on Tuesday while asking lenders to undertake reforms and bring down their operation costs.

'Within the interest rate structure, if banks increase their efficiency, interest rates will come down. What we call operational efficiency of the banks and that is one thing that should happen', he said, while talking to reporters on the sidelines of a function here.

Reduction in policy rates, he said, will not serve any purpose unless the banks bring down their spreads and pass on the benefits to borrowers.

'It [interest rate cut] will not happen if you don't reduce your cost.

 If the spread does not come down people will not get the benefit. Unless within the institution there is reform, you will not be able to derive the benefit of policy reform', the RBI deputy chief said.

Reforms were not taking place at individual level, Chakrabarty said, adding 'at one stage cash reserve ratio [CRR] was 25 per cent, Statutory Liquidity Ratio [SLR] was 40 per cent.

Now SLR has come down to 23 per cent, CRR is 4.5 per cent. People say that it should be abolished'.

He regretted that the lending rates of banks have not come down in tandem with reduction in the CRR and SLR. On the other hand they have gone up, he added.


Finance minister P Chidambaram asked public sector banks and rating agencies to handhold small and medium enterprises [SMEs] to enable them tap the capital market for raising funds. He was speaking after launching the dedicated SME platform ‘Emerge’ of National Stock Exchange [NSE]. Stating that tapping the capital market is one of the ways for SMEs to grow, the finance minister said there are entrepreneurs who are willing to come to the market.

The banks and other entities can help SMEs through underwriting of the issues, providing merchant banking services and picking up equity. The minister said ‘it is not easy to bring SMEs into the market’ due to reasons such as regulations of SEBI and other regulators scaring away small entrepreneurs. ‘But I think the opportunities for the micro, small and medium enterprises to raise capital and to grow and to expand are so large that we must get over these obstacles and try to see that those who have the entrepreneurial quality are able to raise capital and grow,’ the finance minister said.About 3.11 crore SMEs contribute 45 per cent to industrial output and 8 per cent to the GDP.

SEBI chairman U K Sinha said the market regulator and the government should take into account not only the requirements of corporates and entrepreneurs to raise money but also ensure safety of the money invested by people.
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