Banks passed on nearly half of RBI rate cuts: Report

Public and private banks have approved about 50 percent of the tariffs submitted by the Reserve Bank of India (RBI) since March 2020. The Central Bank has made several, consecutive cuts up to 115 basic points (bps) to make borrowing cheaper and boost the economy between the coronavirus epidemic and lockout. (1 bps by 0.01 percent)

Banks, however, have failed to transfer much of their profits to customers, reports The Economic Times. The average lending rate for new and outstanding banks has dropped by 50 bps and 40 bps, respectively, from April to November 2020, it said.

The structure of deposit rates in Indian banks – which rely heavily on trading deposits instead of market-based options or supermarkets – has contributed to this, economists have told the newspaper.

Rahul Bajoria, the chief economist at Barclays India, said the slow transfer was not surprising because major banking costs were not directly linked to equity policy rates, and prior information showed that it took approximately 12 to 18 months for full policy transfer rates depending on financial circumstances.

He also added that the RBI could reduce many rates over the next six months to manage money. In fact, term deposit deposits account for more than 40 percent of the bank’s financial resources, and their costs are successfully locked.

Banks also experience asymmetry in interest rates between deposits and loans – with 80 percent lending at floating rates, a study by Barclays Capital showed. Significantly, while public banks on average reduced the remaining lending rates by 59 bps and new loans by 68 bps between April and November 2020, the private banks cut only 48 bps and 36 bps, respectively.

Anil Gupta, Head of Sector – Financial Sector Ratings at ICRA Ratings, praised the strong growth of public banks in deposits that limit their mortgage rates and high-interest rates which gives them a better chance of lowering lending rates. However, the reporter was not able to independently verify the report.

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