MUMBAI: RBI said interest rate pass-through is incomplete as deposit rates are still rising and banks may need to revisit the low lending rates offered through special lending schemes that will affect their margins.
Banks have been fighting a price war in segments like home loans, offering special rates to lure customers. Two weeks before the announcement of RBI’s decision to keep interest rates on hold, Bank of India reduced home loan rates from 8.45% to 8.3%. This move came on top of Union Bank of India and Bank of Maharashtra, which cut key rates to 8.35% earlier. SBI, on the other hand, kept new home loan rates at 8.4%.
In 2021, home loans fell to a record low of 6.7% after RBI cut the repo rate to 4%. Since then, the central bank has raised 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 from April to February, there’s still transmission. In fact, there was a 13 basis point increase in (interest rate on) fresh loans in January. So, we’re still seeing a little bit of a bit of transmission coming through, and we feel, that as the mobilization of deposits is happening at higher and higher rates, there will be further transfer to loan accounts,” said RBI Deputy Governor Michael Patra.
Deputy Governor J Swaminathan said the cost of deposits for banks continues to rise. “Banks are quite active on their target in terms of deposit mobilization as there is a 3-3.5% gap that has been visible for over a year now. Also, we see that the customers are also becoming price sensitive. There is a significant movement towards term deposits. The proportion of CASA is declining as a share 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.