TIL Desk/Business/Mumbai/ Banks are opposed to the move to link marginal cost-based lending rate (MCLR) to an external, market-linked benchmark, the Reserve Bank of India (RBI) has revealed in a rare dissemination of feedback on its website.
While it is standard practice for RBI-appointed committees to prepare their reports and seek feedback, those are not publicly disclosed, except in this case.
The internal study group, looking at the issue of effective monetary transmission, proposed in October 2017 that banks must take into account either of the three external benchmarks – the treasury bill rate, the certificate of deposit (CD) rate and the RBI’s policy repo rate from April 1, 2018.
These proposals were met with resistance from Day One, with bankers commenting publicly that such linking was not possible when a bank’s deposit rates are not linked to the market rate.
In an addendum on its website, the internal group said indeed such an asymmetry exists in the banking system, as depositors are not ready to invest in floating rate deposits. “The IBA (Indian Banks’ Association) and banks, in general, have expressed that the MCLR system is working well and it should continue.