Banking and monetary regulator, Reserve Bank of India has urged banks and lending institutions to increase the interest rates on deposits and reduce the same on loans as a step to bring down the net interest margin (NIM). NIM in Indian economy is currently running higher than that in corresponding emerging nations.

Speaking at 'Bancon 2010' seminar held in Mumbai, RBI governor, D Subbarao said that, "To achieve double-digit and inclusive growth, we need to raise the level of national savings and channel those savings into investment." And for that, "banks need to raise the interest rates offered to depositors and reduce the lending rates charged on borrowers-in other words, reduce their intermediation costs, reduce the net interest margin."

"The efficiency gap between us and our peer group of countries is indicative of the catch-up job we have to do," Subbarao added.

Despite a decrease in NIM from 3% in 1999-2000 to 2.5% in 2009-10, the figure still stands higher than the other emerging economies.

The governor of the apex bank said that ways to improvise efficiency are many including cost optimization in arenas such as wages and salaries, cost of transaction and provisioning expenses.

"Reduction in operating costs will also come through nurturing asset quality, diligent loan restructuring of viable assets and reducing non-performing loans," he said.