Chidambaram urges banks to cut rate, discourage gold buying

Finance Minister P Chidambaram urged banks to pass on the benefits of policy rate cuts to their borrowers. At the same time, he stressed on scarping the fetish for gold investment. Higher imports of gold is fuelling the widening current account deficit.

“Since 2012 the Reserve Bank of India cut repo rate by 125 basis points. However, commercial banks have reduced their rates only by 30 bps. Moreover, banks have a role to play in dampening the enthusiasm for gold. Gold is like another metal, which shines a little more than copper or glass,” he said while addressing a conference held by India Banks’ Association in Mumbai.

During January 2012 to April 2013, according to India Ratings, the domestic arm of global rating agency – Fitch, the repo rate had been reduced by 100 bps, reverse repo rate by similar margin and cash reserve ratio by 200 bps.

“Public sector banks, median base rate reduction was only 45 bps, while median base rate reduction by private banks was zero. Certainly, some private sector banks reduced their base rate by 25 bps to 40 bps,” the India Ratings research report said.

Repo is the rate at which banks borrow money from the central bank while lenders park their surplus funds with RBI through the reverse repo window.