Recently, the RBI Deputy Governor K. C. Chakraborty lamented that banks were not passing on the benefit of lowered policy rates to customers. He attributed this to the operational inefficiency of banks in general, and called upon banks to improve their performance. It’s worth looking at whether Indian banks are indeed inefficient. Operational efficiency can be seen in various ways. For a customer, it would mean prompt and hassle-free services at minimum cost, and quick redressal of grievances. For a borrower, lower turnaround time, cheaper interest rates and swiftness in extending non-fund-based facilities would matter. For the regulator, the interest margin that banks enjoy is an indicator of operating efficiency. The issue of operational efficiency can be examined from each of these perspectives — but what is RBI’s stand on banks’ performance?.......
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