Stating that RBI has "guardedly" cut policy rates, public sector Indian Overseas Bank today said it would be a challenge for banks to pass on the benefit of the rate cut to push growth.
"...RBI has guardedly reduced the policy rates by 25 basis points. Growth-inflation dynamics in the current quarter will decide whether the regulator will follow this up with further cuts.
"Against this, recovery in growth is expected to be gradual through 2013-14, which again depends on global commodity price trends," IOB Chairman and Managing Director M Narendra said.
"It will be, therefore, a challenge for banks to pass on the benefit of the rate cut to push growth and consumption demand without impacting the already slowing deposit growth," he said.
Stating that the release of Rs 18,000 crore through a 0.25 per cent cut in CRR would provide adequate funds to the commercial sector, he said, "With the government not going for additional borrowings, the full benefit of the CRR cut will flow into business".
"There is a clear case for policy transmission on lending rates by banks. It is for the industry and business to respond positively so that the current cut in interest rates continue to trend down," he said.
He said the widening current account deficit continue to pose a major challenge to inflation control.
After a nine-month gap, RBI today reduced short-term lending (repo) rate by 0.25 per cent and decided to release Rs 18,000 crore of primary liquidity, a move that would lead to moderation in home, auto and corporate loans.