The Governor of the Reserve Bank of India Urjit Patel on Saturday exhorted banks to reduce their lending rates to push credit demand in laggard segments, saying banks have benefited from influx of low-cost deposits and its previous repo rate cuts.
"One the amount of reduction in the repo rate that we have undertaken combined with the fact that banks have benefited immensely from the influx of deposits which are CASA deposits, that has come into the system.
"And the weighted average lending rate reduction has been considerably less, given that we feel that there is some scope for further reduction in lending rates and if you see that for sectors like housing, personal etc the reduction has been much more than for other sectors by the same bank," he said.
He expressed hope that there could be a cut in lending rates in some sectors where reduction has been relatively lower so far.
RBI for the second time in a row in its review earlier this week opted for a status quo awaiting more clarity on inflation trend and impact of demonetisation on growth even as it hinted at no interest-rate cut in immediate future by shunning its long-held "accommodative" monetary policy stance.
However, the central bank had reduced its repo rate by a total 1.75 percentage points between January 2015 and September 2016.
With regard to inflation, Patel said there is no change in stance as far as retail inflation targeting is concerned.
"The commentary in our monetary policy statement by the Monetary Policy Committee (MPC) was the observation that inflation ex-food and fuel has hardly bulged since September and therefore if we want a further reduction in headline inflation it is going to be difficult," he said.
"So it is not a change of stance with respect to that at all, just a comment that since September CPI inflation ex-fuel and food has been difficult to bring down and going forward to go towards 4 per cent and away from 5 per cent on a durable basis requires that CPI ex-food and fuel to also come down," he added. The MPC has been mandated to maintain retail inflation at 4 per cent (with plus/minus 2 per cent range) till 2021.
Meanwhile, Finance Minister Arun Jaitley said that he expected the RBI to cut interest rate but respect its decision to hold status quo.
"All finance ministers have a perpetual desire (of lower rate) but at the end of the day we all respect the decision that the RBI takes," he said after addressing customary board meeting post Budget.
Jaitley said that he explained the board on economic situation and various Budget suggestions.
"One of the board members did ask some question with regard to clarification on what government had in mind. And I have explained what the government has in mind with regard to the electoral bonds," he said.