Breaking News

You are here » Indian-Commodity  :  Top News  :  RBI raises concerns over weak monetary policy transmission


RBI raises concerns over weak monetary policy transmission

Reserve Bank of India (RBI) in its annual report for 2015-16 has raised concerns over weak monetary policy transmission, as the banks are loading a higher credit risk premia on their new customers to save their profitability. In response to the reduction in policy repo rate by 150 basis points during January 15, 2015, through April 5, 2016, it said the median base rate of banks declined by 60 basis points as against a higher decline of 92 bps in median term deposit rates reflecting banks' preference to protect profitability in the wake of deteriorating asset quality and higher provisioning.

The report stated that so far in financial year 2016-17, there has hardly been any transmission of a reduction in the policy rate to the actual lending rates charged to customers. While the cost of funding by banks has declined somewhat, leading to a decline in shorter maturity marginal cost of funds based lending rate (MCLR), there has been an increase in the term premia in respect of term loans of one year and above, thereby attenuating the transmission to actual lending rates charged to customers. Moreover, banks may have been loading a higher credit risk premia on their new customers in order to attain their desired return on net worth in a rising Non-Performing Assets (NPA) environment.

RBI said that banks are charging a higher strategic risk premia on their riskier loans as part of their business strategy to reorient their lending operations towards less risky activities. The consequent rise in the spread is reflected in a near unchanged weighted average lending rate (WALR) in respect of both outstanding and fresh rupee loans during 2016-17 up to June. It further said that under MCLR the transmission to WALR is expected to improve on the assumption that the marginal cost of funds is more sensitive to changes in the policy rate than the average cost of funds.

Related News

View all news

Copper futures end tad higher on Monday

Copper futures ended slightly higher on Monday, with hopes of a resolution to the US-China trade war outweighing the threat of higher US tariffs on Chinese goods. Copper prices improved further as the......

Gold futures extend winning streak to fourth straight session on Monday

Gold futures extended winning streak to fourth straight session by registering small gains on Monday, amid geopolitical uncertainty and an eased greenback. However, gains were limited due to thin volume......

Physical Rubber prices witness weakness on Monday

Physical Rubber prices showed weakness on Monday amidst dull volumes in the market. Spot prices for RSS-4 variety fell to Rs 120.50/ kg compared to its previous closing of Rs 121/ kg; while the RSS-5 variety......

Top News

View all news

Jumbo Finance gets shareholders' nod to increase borrowing limits up to Rs 30 crore

Jumbo Finance has received an approval to increase Borrowing Limits of the company up-to Rs 30 crore. The shareholders of the company at their meeting held on November 19, 2018, approved the same.Jumbo......

Alembic Pharma gets USFDA's nod for Vardenafil Hydrochloride Orally Disintegrating Tablets

Alembic Pharmaceuticals has received an approval from the US Food & Drug Administration (USFDA) for its Abbreviated New Drug Application (ANDA) Vardenafil Hydrochloride Orally Disintegrating Tablets,......

SRF expects total Rs 28 crore quantum of damage due to Cyclone GAJA

SRF is expecting a total Rs 28 crore quantum of damage caused, based on the initial assessment. The disruption of operations was due to Cyclone GAJA at the plant of Technical Textiles Business (Viralimalai)......