MUMBAI: RBI has said that interest rate transmission is incomplete as deposit rates are still rising and banks may need to relook at the low lending rates, offered through special loan schemes, which will affect their margins.
Banks have been fighting a rate battle in segments such as home loans, offering special rates to lure customers. Two weeks before the announcement of RBI’s decision to maintain interest rates, Bank of India reduced home loan rates from 8.45% to 8.3%. This move outdid Union Bank of India and Bank of Maharashtra, which had lowered key rates to 8.35% earlier. SBI, on the other hand, kept new home loan rates at 8.4%.
In 2021, home loan rates had dropped to a record low of 6.7% after RBI cut the repo rate to 4%. Since then, the central bank has increased rates by 250 basis points to 6.5%, but the cost of home loans has increased by 170 basis points. For new borrowers, rates are much lower, thanks to special offers, although older borrowers have seen their rates increase in proportion to the rate hike.
“If you look at the transmission in lending rates from April to Feb, there is still transmission. In fact, there was a 13-basis point increase in (interest rate on) fresh loans in Jan. So, we are still seeing a little bit of transmission going through, and we feel that as the mobilisation of deposits takes place at higher and higher rates, there will be further transmission to lending rates,” said RBI deputy governor Michael Patra.
Deputy governor J Swaminathan said that the cost of deposits for banks is continuing to increase. “Banks are quite active in terms of their purpose in terms of mobilising deposits because there is a 3-3.5% gap that is visible for more than a year’s time now. Also, we are seeing that the customers are also becoming price sensitive. There is a significant movement towards term deposits. The proportion of CASA is declining as a part of total deposits.”
Bankers said the reduction in lending rates was also because lenders wanted to increase their market share at a time when corporations were still borrowing.
