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With fall in cost of funds more banks likely to follow suit

According to a DBS Bank official, benefits of easier monetary policy have yet to reach the real economy.

Bankers on Tuesday said interest rates are expected to come down as the past rate cuts by the RBI will lead to a decline in cost of funds for banks. “Interest rates can be expected to come down as the policy measures already taken reflect in banks’ cost of funding,” said ICICI Bank MD Chanda Kochchar.

According to VR Iyer, chairperson & managing director, Bank of India, the impact of reduction in cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers. “Retail borrowers may see lower EMIs,” she said.

TM Bhasin, chairman, Indian Banks’ Association, said, “After front loading two repo rate cuts in quick successions, the RBI has taken a pause to assess the effects of its action in the economy in general and banking sector in particular.  To nudge banks to effectively transmit monetary policy signals, a pitch is made to move over to marginal cost for base rate computation.”

“To encourage banks to reduce base rates the RBI will issue guidelines on the use of marginal cost of deposit in the base rate calculations. The impact of reduction in cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers. Retail borrowers may see lower EMIs,” Iyer said.

According to a DBS Bank official, benefits of easier monetary policy have yet to reach the real economy.