Solutions to lack of transmission

Make it mandatory to link savings bank interest rate with an external benchmark. Banks should also make public details of how they calculate their MCLRs

The Reserve Bank of India (RBI) wants proper and quicker monetary transmission. That is, it wants the interest rates in the market (government securities, corporate bonds, fixed deposits (FD) and savings bank accounts with banks, lending rates of banks and others) to react in consonance with the policy rate (say, the repo rate).

Let’s understand with a simple example. Say, the RBI tracks only three rates – the 10-year government securities rate, 3-year bank FD rates and home loan rates.  If the RBI’s declared repo rate is 6.25 per cent, and the other three rates are:

• 10-year government securities – 7.50 per