Transmission Of Rates Is Still A Work In Progress, Says RBI's Shaktikanta Das
Across bank groups, the transmission to rates on fresh rupee loans for public sector banks was higher than their private peers.
The Reserve Bank of India is expecting a further rise in lending rates, as the transmission of its 250 basis points repo rate hike is yet to fully pass-through.
"Our ongoing effort is to ensure fuller transmission of policy actions and anchoring of household inflation expectations... In the credit market, monetary transmission continues to be work in progress," Governor Shaktikanta Das said, in his monetary policy speech on Friday.
Between May 2022 and February 2024, the weighted average lending rates on fresh and outstanding rupee loans of scheduled commercial banks increased by 185 basis points and 111 bps, respectively, according to data available in the monetary policy report, released on Friday. This indicates that there is still room for transmission in fresh and outstanding loans.
Similarly, the weighted average deposit rates for fresh deposits saw a rise of 241 bps, while those on outstanding deposits went up 183 bps.
While fresh deposits show limited room for transmission, it is largely due to higher cost bulk deposits which have been repriced faster. For fresh retail term deposits, the rise in rates has been around 162 basis points in the period between May 2022 and February 2024.
"...we are still seeing a little bit of transmission going through and we feel that as the mobilising of deposits takes place at higher rates, there will be further transmission to lending rates," RBI Deputy Governor Michael Patra said, while addressing reporters after the monetary policy announcement.
Across bank groups, the transmission to weighted average lending rates on fresh rupee loans for public sector banks was higher than their private peers. However, private banks fared better on repricing their outstanding loan rates.
"The maximum pass-through to lending rates was witnessed in the case of foreign banks, reflecting their higher share of low-cost and wholesale deposits of lower maturity," the monetary policy report said.
The highest increase in the weighted average lending rates on fresh rupee loans was witnessed in case of large industries, followed by agriculture, infrastructure, education and other personal loans.
According to Patra, there still exists a gap between credit and deposit in the banking system. This ensures that transmission will continue in the coming months.
"...there is still a need for deposits and these (bulk) deposits come at a higher rate than retail deposits. One day, they will try to protect their NIMs (net interest margin) and therefore, they will pass it a little bit," Patra said.
