Jaitley asks banks to pass RBI rate cuts to borrowers

Finance Minister Arun Jaitley on Friday expressed the hope that those commercial banks which have not passed on to borrowers the interest rate cuts made by the Reserve Bank of India (RBI) this year, would do so over the next few weeks.

"There was a presentation made by each bank on the RBI rate cuts of 25 basis points each from December to June. Some banks have not passed on the rate cuts. I hope over the next few weeks they will be in a position to reduce rates," Jaitley told reporters here after meeting with heads of public and private sector banks.

"The banks expressed problems in their balance sheets. They also asked us to take a relook at the small saving schemes, which with their high rates at 8.5 to 9 percent is pushing up their deposit rates," the finance minister said.

"The banks said that when the repo (RBI's short-term lending rate) rate was raised, they were slower to raise their interest rates, and now they are also slower to bring them down," he added.

Following his meeting with RBI Governor Raghuram Rajan on Thursday, Jaitley was expected to take up the matter of banks passing on RBI's earlier rate cuts.

This was the finance minister's first meeting with Rajan after RBI, last week, reduced its repo rate, at which it lends to commercial banks, from 7.5 percent to 7.25 percent.

In three separate cuts this year, the RBI has reduced the repo rate, at which it lends to commercial banks, by 0.75 percent.

"Our policy is neither too conservative, nor too aggressive -- but just right for the given moment," Rajan said at a post-review press conference, and made it clear that he would like to see the commercial banks passing on the rate cuts down the line.

In April, Rajan said banks have to pass on the previous rate cuts, and dismissed claims that cost of funds remained too high.