SBI favours linking interest rates to external benchmark
MUMBAI: State Bank of India (SBI), the country’s largest lender, on Friday hinted that it was open to the Reserve Bank of India’s proposal on linking interest rates to an external benchmark. “I don’t see much of an issue,” said Rajnish Kumar, chairman of SBI, a day after RBI deputy governor Dr Viral Acharya said the central bank will take a considered view on the proposal.
“The fact is that for banks in India, retail deposits constitute a very high portion of deposits and we cannot transmit rates to such a large section of retail depositors. We will also have to find ways and means on how do we take care of this aspect. But if any new system comes in, we will ready ourselves for the new system,” Kumar said.
Interacting with media on the sidelines of a two-day event here, Kumar said, “If regulators decide that all loans have to be linked to external benchmarks, then to what extent can deposits be linked to external benchmarks is something we will have to deliberate. For effective transmission, both sides of the balance sheet must be taken care of.”
On Thursday, Acharya said RBI will factor in the transition cost of moving to a new system before taking a call.
“Over the past two decades, it has been the endeavour of RBI to strengthen the monetary transmission process, but these efforts have yet not yielded the desired results. The transmission from the policy repo rate to bank lending rates, which is the dominant transmission channel in India, has remained a matter of concern,” he said.
Last month, an RBI-committee recommended linking rates to a market benchmark for effective monetary transmission and to improve transparency.
The panel, headed by Janak Raj, principal adviser, monetary policy department, recommended that all floating rate loans advanced from April be referenced to one of the three external benchmarks.
It also suggested a risk-free curve involving rates on treasury bills, or certificates of deposit rates or the central bank’s policy repo rate.