MUMBAI: Monetary policy transmission to lending and deposit rates has improved in the external benchmark linked rates regime (EBLR), facilitated by accommodative monetary policy stance, large surplus liquidity conditions and subdued credit-offtake, according to a study by RBI economists.
The weighted average lending rates (WALRs) on fresh as well as outstanding rupee loans have declined across sectors. Banks have extended the benefits to existing borrowers by reducing the WALR more than the repo rate cuts during the EBLR period according to a study titled ” Monetary Transmission to Banks’ Interest Rates: Implications of External Benchmark Regime” published in the latest monthly bulletin.
The increase in the share of loans linked to external benchmark in total outstanding floating rate loans has facilitated transmission to weighted average lending rate (WALR) on outstanding rupee loans
Across domestic banks, private banks witnessed a higher pass-through to term deposit rates compared to their state-owned peers. However, with uptick in credit demand and moderation in deposit growth in the recent months, banks have started pricing in their deposits at higher rates to mobilise stable funding.
Retail loans and MSMEs loans segments have seen a significant increase in share of outstanding loans linked to external benchmark since the introduction of external benchmark regime for select sectors in October 2019. The WALRs on retail loans and loans to MSMEs have declined significantly during the period October. 2019-February 2022. The decline was sharpest in the case of other retail loans -222 bps, followed by vehicle loans-208 bps and loans to MSMEs at 194 bps.
Since March 2020, most sectors have witnessed decline in WALRs on fresh rupee loans. The decline is significant in case of commercial real estate followed by other retail loans and loans to large corporates.
The pace of transmission is expected to improve going forward as the proportion of external benchmark linked loans increases further.
Stay connected with us on social media platform for instant update click here to join our Twitter, & Facebook
We are now on Telegram. Click here to join our channel (@TechiUpdate) and stay updated with the latest Technology headlines.
For all the latest Business News Click Here
For the latest news and updates, follow us on Google News.
Denial of responsibility! NewsAzi is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.
