The Telegraph
Since 1st March, 1999
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Room for cut in lending rates

Mumbai, Aug. 27: The Reserve Bank of India (RBI) has expressed its disappointment with banks by saying there is room for aggressive reductions in lending rates.

The RBI, however, also said the full impact of soft rates was not felt due to various structural rigidities, which made it difficult for banks to lower rates.

“With lower fund costs, reductions in the cash reserve ratio (CRR), lower non-performing assets (NPA) and improvements in risk perceptions in 2002-03, banks have room for undertaking more aggressive reductions in the average lending rate so that the real lending rate remains in alignment with the GDP growth rate trend,” the RBI observed.

According to the central bank, with the CRR set on a declining trajectory, the pre-requisites for a durable reduction in bank lending rates in India are better NPA management and a reduction in any unreasonable wedge between costs and returns.

The RBI has argued for granting industry status to commodity futures business. “Granting industry status can improve access for participants to institutional funds for their working capital,” it said.

“Participation in commodity futures market should encompass mutual funds, financial institutions and foreign institutional investors under appropriate regulatory supervision,” the RBI added.

The RBI has also argued in favour of calibrating proper incentive structure by minimising the stamp duties imposed by state governments and changing the income tax laws suitably.

The RBI has acknowledged that Indian commodity futures market is still at a nascent stage with a small turnover and catering to separate trading communities in different regions. According to the RBI, another fault line in the domestic commodity markets is the hawala markets operating since decades. These markets trade 20 to 30 times the volume of official future exchanges.

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