There is a scope for lending rates to fall further: Urjit Patel
MUMBAI: Although the Reserve Bank of India has refrained from cutting policy rates, the RBI has subtly nudged banks to lower lending rates. Addressing media, governor of RBI Urjit Patel said that there is a scope for lending rates to come down. On Wednesday, the RBI kept policy rates unchanged at 6.25%.
“There is still scope for lending rates to come down since our policy rates have come down by 175 basis points since January 2015 while the weightage average lending rates have fallen by 80 to 85 basis points,” Urjit Patel said in response to a question whether he expects banks to lower lending rates.
The comment also comes at a time when a number of banks have sharply reduced - marginal cost of lending rate or MCLR – the floor rate at which they lend to best borrowers post demonetisation. SBI lowered MCLR by 90 bps from 8.90% to 8% from January 1. However, most banks have not cut base rate- the floor lending rates and nearly 50% of the loans book priced on base rate.
“Thanks to demonetisation banks are flooded with deposits, so lending rates have come down and transmission of policy rates have taken place,” said Viral Acharya, deputy governor, RBI who took charge last month. In the past, the RBI has often pointed out that banks are slow in passing or transmitting the cut in policy rates to end borrowers but are quick in raising rates when the cycle reverses.
Statement released to media said that the Monetary Policy Committee (MPC) was of the view that for timely transmission of policy rates to bank’s lending rates will be considerably improved if the banking sector’s bad loans are resolved more quickly and efficiently and if recapitalisation of the banking sector happens faster.
It also said that transmission can also take place if the formula for adjustments in the interest rates on small savings schemes to changes in yields on government securities of corresponding maturity is fully implemented.
“There is still scope for lending rates to come down since our policy rates have come down by 175 basis points since January 2015 while the weightage average lending rates have fallen by 80 to 85 basis points,” Urjit Patel said in response to a question whether he expects banks to lower lending rates.
The comment also comes at a time when a number of banks have sharply reduced - marginal cost of lending rate or MCLR – the floor rate at which they lend to best borrowers post demonetisation. SBI lowered MCLR by 90 bps from 8.90% to 8% from January 1. However, most banks have not cut base rate- the floor lending rates and nearly 50% of the loans book priced on base rate.
“Thanks to demonetisation banks are flooded with deposits, so lending rates have come down and transmission of policy rates have taken place,” said Viral Acharya, deputy governor, RBI who took charge last month. In the past, the RBI has often pointed out that banks are slow in passing or transmitting the cut in policy rates to end borrowers but are quick in raising rates when the cycle reverses.
Statement released to media said that the Monetary Policy Committee (MPC) was of the view that for timely transmission of policy rates to bank’s lending rates will be considerably improved if the banking sector’s bad loans are resolved more quickly and efficiently and if recapitalisation of the banking sector happens faster.
It also said that transmission can also take place if the formula for adjustments in the interest rates on small savings schemes to changes in yields on government securities of corresponding maturity is fully implemented.
