Scheduled Commercial Banks (SCBs) have carried out a full pass-through of policy rate cuts of 115 basis points to the weighted average lending rate (WALR) on new rupee-denominated loans as well as outstanding loans since March 2020, according to an article from the Reserve Bank of India’s Latest Monthly Bulletin.
This speaks to the effectiveness of the Reserve Bank’s policy measures, according to the “State of the Economy” article by RBI officials.
SCBs continue to price new loans at historically low rates, reflecting improved pass-through during the current easing phase, the authors said.
From March 2020 to January 2022, the one-year median marginal cost of the funds-based lending rate (MCLR) decreased by 95 basis points (bps). A basis point is equal to one hundredth of a percentage point.
Improved monetary transmission led to lower borrowing costs for many sectors, including the large non-banking financial corporations (NBFC) sector, the authors said.
Moderate deposit rates
The median term deposit rate (MTDR) moderated by 151 basis points between March 2020 and January 2022 due to excess liquidity.
“The noticeable decline of 178 basis points is particularly noticeable for shorter duration deposits with maturities up to one year,” the authors said.
Across the national banks, private banks carried out higher time deposit pass-through rates than public sector banks (PSBs) due to robust deposit growth.
SCBs reach their inflection point
“However, SCBs have reached an inflection point. With an increase in credit demand and a decrease in aggregate deposit growth, banks have started pricing their deposits at higher rates in recent months,” according to the article.
As a result, the MTDR has increased slightly by 5 basis points since October 2021.
February 16, 2022