WALR transmission higher for private banks than PSBs in easing cycle: RBI

RBI Bulletin shows stronger pass-through of rate cuts to lending rates by private banks than PSBs, though overall transmission across sectors remains robust

Transmission of policy rate cuts to lending rates was stronger among private sector banks than public sector banks during the current easing cycle, according to the latest Reserve Bank of India (RBI) Bulletin.

 

In response to the cumulative 125 basis points (bps) reduction in the policy repo rate between February 2025 and February 2026, scheduled commercial banks lowered both repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLRs). The pass-through to weighted average lending rates (WALRs) was significant across sectors, indicating effective monetary transmission.

 

However, the extent of transmission differed across bank groups. During February 2025–February 2026, the pass-through to WALRs was higher for private sector banks compared to public sector banks. On the deposit side, the transmission was broadly similar across both groups. Foreign banks recorded the sharpest reduction in both deposit and lending rates.

   

The lending rates of private sector banks on fresh rupee loans were down by 104 basis points, compared to 75 basis points for public sector banks. The WALR on fresh rupee loans for private sector banks was down by 94 basis points, as against 77 basis points on outstanding rupee loans of public sector banks.

 

On the liabilities side, the softening in weighted average domestic term deposit rates (WADTDR) on fresh deposits was driven largely by bulk deposits, reflecting banks’ response to surplus liquidity conditions and lower policy rates.

 

Overall, during the easing cycle, WALRs on fresh rupee loans and outstanding loans declined meaningfully, supported by reductions in benchmark-linked lending rates. The RBI noted that the transmission has been robust across sectors, aided by the increasing share of loans linked to external benchmarks.

 

In financial markets, Indian equities came under pressure in March amid persistent geopolitical uncertainties, with volatility rising sharply. However, markets recovered in April (up to mid-month), supported by easing global tensions and moderation in crude oil prices.

 

The RBI’s assessment underscores improving monetary transmission in the banking system, although differences remain across bank groups in the pace and extent of lending rate adjustments.