Mumbai: While the regulator and the market may not agree on the extent of transmission of policy rates to lending and deposit rates, central bank data show that the full transmission of the 2.5-percentage-point hike in the benchmark repo rate since May 2022 is still not complete, except in the case of fresh term deposits.
While they don’t reflect the full impact of the policy rate hike, lending and deposit rates on both fresh and outstanding deposits rose in the last fiscal year, putting pressure on banks’ interest margins.
The weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits increased to 6.62% in March 2024 from 6.44% the previous month, according to data released on Tuesday by the Reserve Bank of India. In the 12 months through March, the rate rose by 14 basis points (bps), or 0.14 percentage points, after a dip in the first half of the fiscal year. The rate transmission since May 2022, when the RBI started raising rates after a long pause, works out to 259 bps – 2.59 percentage points – for fresh term deposits.
The weighted average lending rate (WALR) on the fresh rupee loans of commercial banks was 9.37% in March (9.36% the previous month). It rose 13 bps over the last one year and 186 basis points since May 2022.
Excluding the merger impact of HDFC and HDFC Bank, the WALR on outstanding rupee loans was 9.85% in March 2024, up 13 bps over one year and 113 bps from the time the RBI started raising the policy rate.
Excluding the merger impact, the WADTDR on outstanding rupee term deposits of scheduled commercial banks was 6.88% at the end of FY24, showing a 72-bps increase in one year and up 185 bps since May 2022.
Rate transmission across bank groups indicates that the increase in the deposit and lending rates was higher in the case of public sector banks, except for outstanding loans, between May 2022 and February 2024, RBI economists wrote in the latest monthly bulletin on the state of the economy. The lending rates of PSBs remained lower than those of private banks, while their deposit rates were higher.
