Banks should transmit lower cost of funds to customers, experts say

As the Reserve Bank kept its key lending rate on hold, the industry today said banks should be nudged to transmit lower cost of funds to customers amid increased liquidity in the system. Industry chambers also expect the RBI to change its policy stance going forward and effect a rate cut to refurbish business sentiment and support domestic demand.

The Reserve Bank of India (RBI) left its benchmark lending rate unchanged at 6.25% today for the third policy review in a row citing upside risk to inflation.

It, however, increased the reverse repo rate by 0.25% to 6%, narrowing the policy rate corridor.

Chanda Kochhar, MD and CEO, ICICI Bank, said, "RBI’s clear articulation on liquidity management is welcome and would ensure stability in markets by enforcing the sanctity of the operating rate while addressing temporary liquidity imbalances. Money market rates would be anchored in a tighter band through the narrowing of the LAF corridor. RBI’s continued focus on inflation targeting will reinforce confidence in the Indian economy and continue to support capital inflows.
 
"The focus on resolution of stressed assets will help in renewing confidence and boosting investment and aggregate demand going forward. Along with these, the policy also articulates other important developmental policies, such as expanding the investor base in REITs which would help to expand and deepen domestic financial markets.