Easy liquidity led to faster monetary transmission: Das

Shaktikanta Das

Shaktikanta Das  

The Reserve Bank on Thursday said monetary transmission had improved considerably due to comfortable liquidity conditions and that banks had passed on the benefit to borrowers by reducing lending rates by about 1.62 percentage points in the last nearly one-and-a-half years.

Defending the easy liquidity stance, RBI Governor Shaktikanta Das said private sector entities had seen benefits from the policy.

Mr. Das said the measures had also ensured faster transmission of policy rates into the actual lending by banks, in turn helping the economy. At present, the overall excess liquidity is at over Rs. 5 lakh crore. Since February 2019, the RBI had slashed benchmark lending rate by 250 basis points (bps). Of this, cuts of 115 bps have taken place this year.

“Monetary transmission has also improved considerably. The weighted average lending rate (WALR) on fresh rupee loans sanctioned by banks declined by 162 bps during February 2019-June 2020, of which 91 bps transmission was witnessed during March-June 2020,” Mr. Das said. Although non-food bank credit has slowed to 5.6% (as on July 17), credit to non-banking financial companies (NBFCs) grew at 25.7% in June, loans to services at 10.7%, and to housing at 12.5%.

Observing that a comfortable liquidity condition has brought down the cost of raising capital, the Governor said that lower borrowing costs had led to record primary issuance of corporate bonds of Rs. 2.09 lakh crore in the first quarter of 2020-21.

“In particular, mutual funds have stabilised since the Franklin Templeton episode. Assets under management of debt MFs, which fell to Rs. 12.20 lakh crore as on April 29, 2020, improved to Rs. 13.89 lakh crore as on July 31, 2020,” he said.

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