Reserve Bank of India Governor Shaktikanta Das met chief executives of public sector banks (PSBs) on Friday where the need for a deeper rate cut by the banks was discussed.
The meeting, ahead of the monetary policy review announcement on August 7, discussed various issues, including challenges of credit flow to the productive sectors of the economy.
“The Governor acknowledged discernible improvements in the banking sector while underscoring that several challenges still remain to be addressed, particularly with regard to the stressed asset resolution and credit flows to needy sectors,” the RBI said in a statement,
Among issues discussed in the meeting, the statement mentioned, “Less than desired level of transmission of monetary policy rates”.
While the central bank has reduced the repo rate by 75 bps in 2019, banks have been reluctant to reduce lending rates. Even after the third 25 bps rate cut in a row by the RBI in June, banks responded in cutting lending rates by 5-10 bps.
With headline retail inflation still below the RBI’s medium target of 4%, and growth continues to be sluggish, the central bank is expected to lower interest rate further.
The meeting also noted improving recovery efforts by banks and resolution of stressed assets as facilitated by revised framework for resolution announced by the RBI on June 7, 2019.
The Governor also discussed the credit and deposit growth on the back of a slowing economy.
Strengthening internal control mechanism for improved fraud risk management, recent initiatives to address issues relating to NBFCs and the role banks can play in mitigating lingering concerns - were also discussed during the meeting, the statement said.
“The Governor also underlined the importance of expanding and deepening digital payments ecosystem in line with the recommendations of the Report of the Committee on Deepening of Digital Payments and Reserve Bank’s Payment System Vision Document 2021,” the statement said.
In this context, on the suggestion of the Governor, it was agreed that banks will identify one district in each state to make it 100% digitally enabled within one year in close coordination and collaboration with all stakeholders.
“To the extent feasible, such districts may be converged with the ‘Transformation of Aspirational Districts’ programme of the Government of India. IBA is also expected to play a catalytic role in this regard,” RBI added.
