RBI to banks : Adjust Base rate in line to monetary conditions
By Joseph Samson
Aug 7, 2012
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Reserve Bank of India has asked the banks across the nation to tune in their base rates/ benchmark rates in line to the monetary policy. RBI Deputy Governor Mr. Anand Sinha asked banks to reduce their benchmark rates so as to transfer the benefits of the reduced statutory liquidity ratio (SLR) announced recently.

Mr. Sinha, who was present at the launch of IDBI Bank's website for subscription certificate of deposits pointed out that at present, the banks reduce the spread above the base rates which only benefits the new customers.

Last week when RBI announced a 1 percent cut in the SLR, the leading lender of the country, State Bank of India reduced the lending rates on home loans by 60 basis points and car loans by 50 basis points, but kept its base rate unchanged at 10 percent.

However, banks are skeptic to reduce their base rates, since under current liquidity conditions they can not reduce deposit rates. One-sided reduction in base rate without a corresponding cut in deposits rate would hit the bank's profitability.

Mr. Sinha suggested floating rates for deposits, which would be helpful in better reflection of monetary policy in the system.

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