‘A plan to link repo rate with bank loans is already in the works’
MUMBAI: The Reserve Bank of India is likely to consider linking lending rates to repo rate, said Tarun Ramadorai, chairman of a central-bank constituted committee on household finances, in an interview. Edited excerpts:
Unlike the previous two committees on household finance, you examined the issue from the demand side. Your findings.
One of the big things that we come across in the report is that people experience a huge amount of pain from having to deal with bureaucratic institutions. People, especially those at the bottom of the pyramid, when they deal with bureaucratic situations feel shame and embarrassment, feel inadequacies, can’t speak the language properly. They feel like people are looking down on them, they feel like financial products are products for the elite group. What we are saying is let’s depersonalise all of this. Massively leverage technology so that people don’t have to deal with that kind of stuff.
Are new institutions like small finance banks, more adaptable to technological innovations?
It doesn’t matter if you are a new player or established player. One of the biggest impediments to creating new technology is the fact that there is a huge regulatory uncertainty. Hence we suggested having what is called a regulatory sandbox and this should be a cross-regulatory initiative and it should be a safe space in which financial technology firms can experiment with temporary relaxation of rules with the view towards gathering evidence. Through this process, financial technology firms will develop the technology in the right way.
RBI and banks have not exactly won awards for their consumer focus. What makes you believe that a repo rate linked bank loan system will even be on the discussion table?
I think we are starting to see some changes. I think this repo rate linking plus immediate reset (of loans every month) plus immediate pass through is all going to happen. It’s all in the works. I think my committee report is going to be helpful in providing more evidence that this is going to be a useful thing and I hope we will be able to see this going forward.
What is the base result you hope to achieve with this report?
I’d like to see much more financialisation of savings. Second, what I definitely want to see is an increase in the rate of pension and insurance take off in the country. Third one is a switch away from money lenders and so on which has been a stubbornly persistent problem towards institutionalised credit. There I think you can’t ban informal credit but also have to improve the provision of formal credit.