New Delhi: The Reserve Bank of India's decision (RBI) to cut its benchmark repo rate by 35 basis points to 5.40 percent was welcomed by the Indian Banks' Association (IBA) and industry body FICCI.
"Evidently, this would go to reduce the lending rate offered by banks. Overall banks have reduced the interest rate on fresh rupee loans by 29bps. With improvement in liquidity position and reduction in deposit rates offered by banks, further reduction in lending rate are expected. Since inflation is still benign and is in the expected trajectory of the RBI, more focus is given to propel growth and private investment which are lagging behind for a long period of time," said Sunil Mehta, Managing Director and CEO of Punjab National Bank and chairman of IBA, said in an official statement.
"To give further impetus to the retail segment, reduction in the risk weight for consumer credit from 125% to 100% would encourage banks to take more exposure to this sector. Upto June, 2019, year on year retail credit growth of 16.6 percent is far higher than the overall credit growth of 11.1 percent. By the time the festive season sets in, the lower lending rate would help to boost the domestic demand," the statement said.
On the whole, reduction in reporates alongwith continued accommodative stance on liquidity is a clear direction to spur growth and increase the credit flow to the needy and productive sectors, the IBA said.
Commenting on the monetary policy statement announced by RBI today, Sandip Somany, President, FICCI said, "This is an extremely encouraging move and clearly highlights the intent of the central bank to impart greater momentum to India's growth trajectory. The 35 basis points cut in the repo rate marks a deviation from the usual quarter percentage point change that is seen whenever the policy rate is moved."
"With today's cut, RBI has lowered the policy rate by 110 basis points in the current calendar year. The central bank has also kept liquidity in the surplus mode, and it is now critical for banks to move fast and transmit this ease in policy rate in the form of lower lending rates. Unless the transmission is swift and full, we may not see a change in the consumption and investment trajectory," added Somany.