RBI Head Malhotra Emphasizes Asset-Liability Management, Promises Adequate Liquidity for Rate Transmission

Reserve Bank of India (RBI) Governor Malhotra has stressed the need for proper asset-liability management by banks to maintain smooth functioning and prevent liquidity problems. Addressing a press conference, the Governor also assured that the RBI will inject adequate liquidity to enable the transmission of monetary policy shifts, although he added that rate transmission will take 6-9 months to be fully visible in the economy.

 

Asset-Liability Management: The RBI Chief emphasized that banks need to manage their assets and liabilities actively to contain risks and ensure no liquidity mismatches.

"Banks need to manage their balance sheets wisely so that there is no liquidity problem," Malhotra said.

 

Credit-Deposit Ratio: The Governor explained that the RBI does not set particular credit-deposit ratios for banks, giving them the freedom to manage their lending and deposit strategies according to market conditions.

 

Rate Transmission Timeline: Malhotra pointed out that the pass-through of recent rate reductions to borrowers will not be instantaneous and may take at least 6-9 months to fully occur.

This lag is due to structural elements of the banking system and the duration needed for the change in lending rates.

 

Liquidity Support:

The RBI reiterated its determination to ensuring sufficient liquidity in the system to support effective monetary policy transmission.

We will provide adequate liquidity to facilitate the flow of credit and facilitate seamless transmission of policy rates," Malhotra further added.

 

Economic Context:

The central bank lowered the repo rate by 25 basis points to 6% recently to boost growth in the face of global uncertainties.

Smooth transmission of policy rates is essential for bringing these policy changes into effect by reducing borrowing costs for businesses and consumers.

 

Leadership Insights:

RBI Chief Malhotra said:

“Our focus remains on maintaining financial stability while ensuring that monetary policy measures reach all segments of the economy effectively.”

 

Conclusion:

The RBI’s proactive stance underscores its commitment to balancing financial stability with growth-oriented policies, ensuring a robust and resilient banking system. 

 

Source: Economic Times; April 9, 2025.

With sufficient liquidity measures and a focus on systemic stability, the RBI aims to support economic recovery while addressing structural challenges in rate transmission.

With sufficient liquidity measures and a focus on systemic stability, the RBI aims to support economic recovery while addressing structural challenges in rate transmission.