Yields on outstanding loans fall 4 bps in Oct; fresh loan yields up 14 bps

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While the weighted average lending rate (WALR) on outstanding loans fell by 4 basis points in October compared with September, yields on fresh bank loans rose by 14 basis points. This is despite a 100 bps cut by the Reserve Bank of India (RBI). Data shows the WALR of private sector banks on fresh loans increased by 12 basis points in October compared with September, while state-owned banks recorded a 9 bps rise.  

In the last three months, the WALR on fresh loans declined by 17 bps for the banking sector.

 

“With most of the repo-linked repricing already completed and the marginal cost of funds-based lending rate (MCLR) easing at a calibrated pace, incremental loan yields have begun to inch up as banks actively reprice new loans at higher levels. This shift should help banks sustain their net interest margins (NIMs), especially now that the bulk of the downward repricing cycle is behind them,” Motilal Oswal said in a report.

 

Separately, the weighted average term deposit rate (WATDR) declined by 5 basis points for private banks and by 4 basis points for public sector banks in October over September.

 

“With the reduction in savings account rates already factored in, the benefit from term deposit repricing is progressing more slowly, and its effect should become visible in H2 FY26,” the report said, adding that the WATDR will continue trending down as repricing gathers pace, leading to a reduction in the overall cost of funds of banks in H2 FY26.