The data indicates that the weighted average lending rate on new loans ranged by 37 bps to 7.14 per cent for public sector banks and just 26 bps to 8.79 per cent for private banks in May. One basis point is 0.01 percent. It may be recalled that the Reserve Bank has recommended its benchmark repo rate to the Monetary Policy Committee (MPC) reviewed 40 bps to 4.40 per cent to rein in inflation, which has been consistently above the central bank’s comfort level of 2-6 per cent.
recently released financial stability report Notes that the pace and extent of monetary policy transmission has improved with the banking sector’s shift to external benchmark linked lending rate (EBLR) based lending pricing. “Most of the banks have chosen the Reserve Bank’s repo rate as their external benchmark. EBLR Governance, a change in the interest rate cycle will have a quick impact on both deposit and lending rates of banks”.
Among bank groups, private banks raised rates more rapidly than their public sector counterparts. Weighted Average Lending Rates (valry) Outstanding loans to public sector banks increased marginally by 3 bps, with private banks increasing them by 14 bps.
analysis in financial stability The report said that banks have benefited existing borrowers by reducing the WALR over and above the repo rate cut during the EBLR period. The transmission speed is expected to improve going forward as the ratio of external benchmark linked loans increases further, the report said.
Subsequently, the MPC in its June meeting also voted to raise repo rates by 50 bps to 4.9 per cent as continued high inflation could dampen inflation expectations and trigger a second round of impact. It was felt that more monetary policy measures are necessary to stabilize inflation expectations. Future data will show the impact of these measures.