Private banks reduce lending rates more than PSBs in current cycle

Following the RBI's 100-bps policy rate cut, private banks showed faster transmission to lending rates, while PSBs led in passing on deposit rate reductions

Following the Reserve Bank of India’s (RBI’s) rate-setting panel’s decision to reduce the policy rate by 100 basis points (bps), the weighted average lending rates on fresh and outstanding rupee loans declined by 58 bps and 55 bps, respectively, till August, according to RBI data. Meanwhile, the weighted average domestic term deposit rates on fresh and outstanding deposits fell by 106 bps and 22 bps, respectively.

 

Across bank groups, the transmission of rate cuts to lending rates was higher for private sector banks than for public sector banks. Private banks reduced rates on fresh and outstanding rupee loans by 76 bps and 63 bps, respectively, compared with 53 bps and 47 bps reductions by public sector banks.

 

In the case of deposits, however, public sector banks showed higher transmission. Rates on fresh and outstanding deposits fell by 105 bps and 20 bps for public sector banks, compared with declines of 99 bps and 17 bps for private sector banks.