Weighted Average Lending Rates for Outstanding Rupees Loan Commercial banks fell 96 basis points-bps (one basis point 0.01 per cent) between March 2020 and October 21, data released by the RBI indicated.
But these rates for private sector banks have fallen more sharply, at 109 basis points, compared to 85 bps for public sector banks and 187 bps for foreign banks in the country.
The central bank, however, has lowered its benchmark repo rate by a staggering 115 bps during this period and has also introduced a slew of measures to boost banks’ liquidity to tide over the pandemic-induced crisis.
Policy transmission has occurred at a very rapid pace since the pandemic. In the 19-month period prior to the start of the pandemic, the benchmark policy rallied 135 bps. But banks reduced their lending rates by only 15 basis points between March 2019 and March 20, as reflected in the weighted average lending rates on outstanding loans of commercial banks.
A research paper by an economist at the Reserve Bank of India stated that changes in the policy repo rate have led to changes in deposit and lending rates of commercial banks (SCBs), since the introduction of external benchmark-based pricing of loans. have improved.
The paper also noted that transmission has further improved due to massive policy rate cuts since March 2020, and surplus liquidity as a result of various system level as well as targeted measures initiated by the Reserve Bank. Situation remains – cut in cash reserve ratio (CRR) requirements, long term repo operations (LTROs), TLTROs, refinance window for All India Financial Institutions (AIFIs), sector/segment specific liquidity measures (mutual funds, small finance banks) , Micro Finance Institutions/Non-Bank Financial Companies), specialized open market operations and regular OMOs.