Reserve Bank of India (RBI) governor Shaktikanta Das on Monday nudged banks to link their new loans to the repo rate even as the central bank revives its plan for a formal rule-based mechanism to link the lending and deposit rates of banks to an external benchmark.

The RBI has brought down the policy repo rate around 105 basis points so far this calendar year, but the banks have not fully passed on the reductions.

Some lenders, including the SBI, have voluntarily linked a part of their deposits and loans to the repo rate.

Speaking at a conference organised by the IBA and Ficci here, Das asked the other banks to follow suit.

“It (the transmission) should be better and it can be better. But I am happy to note that various banks have linked their lending rates in new loans to the repo rate... I think the time has now come to formalise this.. we will initiate necessary steps,” he said.

Axis challenge

Axis Bank on Monday said linking to repo was not the only measure for better transmission of policy moves.

Rajiv Anand, executive director for corporate lending, blamed liquidity issues for banks’ inability to pass on rate cuts till June. “It’s not necessary to use only external benchmarks, there are multiple avenues to meet the requirement,” he said.