Monday, 4 April 2016

MarketMagnify Updates: RBI's new mission: Getting lenders to pass on its rate cuts

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The Reserve Bank of India (RBI) is embarking on an experiment to remove much of the discretion the country's commercial banks have to set lending rates and force them to base borrowing costs on prevailing market rates. The experiment carries risks, as India periodically suffers severe cash crunches. But the rewards should be lower costs for borrowers.

The RBI adopted the rules, effective from the April 1 start of a new fiscal year, after deep frustration that it cut its key repo rate by 125 basis points last year, but banks lowered lending rates by only about 60 bps.

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