The Government of India has, on more than one occasion, mounted pressure on the Reserve Bank of India to reduce the rate of interest to encourage investment. The RBI has, however, remained cautious, but has reduced rates gradually since early 2015. At lower rates of interest, the fixed and administrative cost acquires more weight in the banks’ cost of funds which restrict their ability to reduce rates in proportion to the repo rate reduction and the gap between the two tends to widen. Lowering repo rates has not accelerated bank credit.
