Bangalore, May 13 (IANS) Reserve Bank of India (RBI) Governor D. Subbarao late Wednesday said there was scope to reduce lending rates by banks in the current economic context.

“Given the current economic context and the policy initiatives of the RBI, there is considerable scope for banks to reduce the lending rates,” Subbarao said at an interactive session orgainsed by the Karnataka chapter of the Confederation of Indian Industry (CII).

Clarifying that the monetary transmission was working well in India, Subbarao said banks had responded by cutting their lending rates from 50 basis points to 250 basis points.

“Banks have also said as much as 75 percent of their lending was below the BPLR (benchmark prime lending rate). It is not correct to evaluate their lending rates by just looking at their BPLR but must look at their effective lending, which has come down significantly from 2007-08 to 2008-09 to 2009-10,” Subbarao noted.

“Unlike in other countries where monetary transmission has broken as they are at the centre of the financial crisis, it is working in India though weaker than it was before because of the impact of the crisis,” the central bank chief added.

Monetary transmission deals with the policy-induced changes in the nominal money stock or the short-term nominal interest rate on real variations such as aggregate output and employment.

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