As RBI continues to nudge banks to pass on repo rate cuts to borrowers, banking behemoth SBI on Thursday said this "blunt instrument" of the central bank was not very relevant for lenders to adjust their rates.
"The repo rate in India' is a blunt instrument," SBI Chairperson Arundhati Bhattacharya said at BNCCI while explaining why repo-rate is not very relevant for Indian banks in adjusting the lending rates immediately.
She said Indian banks primarily depended on deposits and not on market borrowing for their funds, creating a problem in adjusting the books as they (deposits) are fixed in nature.
"In SBI, 97 per cent of our liabilities are deposits and with change in repo rate does not help in reduction in my cost of funds. In overseas banks, 30-40 per cent of their funds are market borrowings and so it is simple to extend repo the impact immediately," Bhattacharya said.
"Out of the total liabilities of banks, 40 per cent is CASA where repo changes has no impact. Hence, adjustments has to be made only with 60 per cent of the funds," she said.
RBI has often ticked off banks for doing little to pass on the benefit of repo rate cut to borrowers.
RBI reduced its repo rate by 0.75 per cent in three equal instalments each on January 15, March 4 and June 2, while the rates were further lowered by 0.50 per cent on September 29.
The repo rate now stands at 6.75 per cent.
RBI Governor Raghuram Rajan on Tuesday said there is more room for rate cut by banks as the lenders on an average have only passed less than half of the 1.25 per cent reduction announced during 2015.
Giving an example of 2013, Bhattacharya said in 2013 RBI raised rate by raised 300 basis points but banks have not raised to that extent.
However, she indicated that the bank was looking at ways over a period of time with some tweaking could be done to overcome the problem such as lending rates only be re-adjusted only after a year or so as cost of fund is also fixed.
Reacting to RBI's new guidelines on marginal cost based loan pricing, Bhattacharya said she expects it will be a well thought guidelines and she can comment only when it comes.
However, she said the earlier draft guideline on it was not workable.
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