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RBI hopes banks will pass on rate cut benefit

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Reserve Bank Deputy Governor H R Khan has expressed hope that banks would pass on the entire benefit of the cut in the key interest rate.

“Different banks are looking at different ways. I think (monetary) transmission will happen and it will happen over time,” he said on the sidelines of National Financial Inclusion Conference here.

RBI slashed its benchmark short-term lending (repo) rate by 0.50% in its fourth bi-monthly monetary policy review last week but banks have not passed on the entire rate cut benefit to customers.

Most of the banks have cut their benchmark lending rate by 0.25%. Following rate easing by RBI, only SBI reduced its benchmark lending rate by 0.40%.

Asked about review of interest rate on small savings, he said, “The secretary, Economic Affairs, and others have mentioned that they are looking at reset period. There was a suggestion to link the rate to G-sec of comparable period.” Government is looking at that and they will probably do, he said. “One reason for the (delay in) monetary transmission is small savings rate,” he added.

With regard to levy of charges on electronic payments, he said government has come out with discussion paper.

“I think Cabinet note is being moved. There are few game changing suggestions,” he said, adding that it is being considered to knock off convenience fee charged for e-payments.

“On merchant discount rate also, they are working on some rationalisation,” he said.

There is also talk on tax breaks and fiscal incentives that the government is considering, he said.

PTI