Banks in no hurry to link repo with interest rates

Banks in no hurry to link repo with interest rates

New Delhi, March 12 (IANS) Public sector banks are in no hurry to follow big brother SBI in linking their deposit and lending rates to the RBI’s repo rate, which may further irk the Reserve Bank of India for not transmitting the lower interest rates to the customers.

While some of them do admit that ultimately linking to repo rate might happen but they are not firm on the time of such commitment.

Also, several PSU banks have not responded when asked if they planned to go for the external benchmark linking with repo rate.

A Punjab National Bank source told IANS: “No decision has been taken, but bank will take a call soon. Other banks have to follow suit sooner or later.”

A Bank of India source said no such decision has been taken.

Bank of Baroda did not respond to the queries sent on the same.

These banks, along with SBI, corner majority of the lendings and deposits. The IDBI Bank which has LIC as promoter too did not respond to queries.

The SBI had caused a raised eyebrow when it linked deposit, loan interest to RBI’s repo rates voluntarily.

While the RBI guidance was to pass on the benefit of falling interest rates to borrowers by linking lending rate to an external benchmark, SBI also linked its savings bank rates (over a limit of Rs 1 lakh) to the external benchmark.

By doing this SBI became the first bank to announce linking its interest rates on deposits and loans to an external benchmark from May 1, 2019. This was expected to be followed by peers.

RBI Governor Shaktikanta Das in February met the top lenders asking them to pass on the benefit of repo rate cut to the customers after it had reduced its repo rate by 25 basis points to 6.25 per cent.

Many bankers said the mismatch between deposits and credit growth, and competition from the government for small-savings offering over 8 per cent returns in many schemes, raise their cost of capital, restraining them to transmit monetary policy easing.

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