The Reserve Bank today asked banks to slash operating costs and bring in more flexibility as well as transparency in lending rates.
"Although overall efficiency and productivity have improved, resources are not being utilised in the most efficient manner. There is a degree of stickiness and non-transparency in bank lending rates," RBI Governor D Subbarao said.
Subbarao, had earlier pointed out that banks were not proportionately cutting lending rates, even after the apex bank had slashed its signalling rates to increase liquidity in the system.
Addressing a conference on Banking-Crisis and Beyond, Subbarao said banks need to reduce costs and pass on the benfits to both depositors and lenders.
"The intermediation cost in India is still high, largely due to high operating costs... The challenge for Indian banks, therefore, is to reduce costs and pass on the benefits to both depositors and lenders," Subbarao said here.
Subbarao said banks funding costs will rise due to proposals at the global level to mandate higher capital standards and cautious apporach in the wake of the global financial crisis.
"This means Indian banks will need to improve efficiency even as their costs of business go up. This is a challenge that will test ingenuity, perseverance, ability to learn and adapt and management skills," he said.
