Rate transmission pace to improve for external benchmarked loans: RBI study

The share of EBLR loans by banks rose from 2.4% in September 2019 to 28.6% in March 2021 and to 39.2% in December 2021, RBI says

The pace of transmission is expected to improve going forward for external benchmark-linked loans as their proportion increases further, according to a Reserve Bank of India study.

Analysts pointed out that till date borrowers have seen the benefit of an easing rate cycle. Now the cycle has turned with the rise in market borrowing rates, factoring in inflation, gradual withdrawal of excess liquidity and impending policy rate hike. This sets the stage for a probable rise in externally benchmarked rates in the months ahead.

The transmission to banks’ lending and deposit rates has improved notably since October 2019. It was facilitated by