Monetary Transmission: RBI says several factors still obstructing in
Monetary Transmission: RBI says several factors still obstructing in
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NEW DELHI: The Reserve Bank of India (RBI) is unhappy with the prevailing monetary transmission situation although it has admitted that the situation has improved over the years, it noted in its monthly bulletin.  Although transmission of deposit and lending rates has considerably improved in recent times, many factors continue to obstruct effective monetary transmission to these bank rates, the Central Bank has said.

The RBI Bulletin for July 2021 noted that the central bank has made several attempts to improve the effectiveness of monetary transmission by refining the process of interest rates setting by banks. Noting that the recent developments in respect of transmission to deposit and lending rates has shown improvement, it said: "However, there are several factors which continue to impede monetary transmission to deposit and lending rates of banks." The factors include mismatch of banks' assets and liabilities, competitive pressure for small savings schemes, and assets quality of scheduled commercial banks. Internal benchmark for pricing of loans and heterogenous pricing methodology of NBFCs also are factors that hinder effective transmission of rates.

 The Bulletin said that monetary transmission in the current easing cycle, so far, has been full across the money market segments and corporate bond market, mainly on account of liquidity augmenting measure, including unconventional measures, taken by the RBI.

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