Public banks are ahead of private banks in passing on repo rate cuts


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New Delhi: Public banks are well ahead of their private sector counterparts in transmitting the rate cut. While PSU banks have passed on almost all of the cut in policy rates since the start of the pandemic, their private sector counterparts have on average only exceeded a third of the cut.

The weighted average lending rate for fresh rupee loans fell 114 basis points, or 1.14 percentage points for PSU banks when the policy repo rate fell 115 basis points. According to data released by the Reserve Bank of India, weighted average lending rates on fresh rupee loans to public sector banks fell from 8.64% in March 2020 to 7.5% in February this year. But for private sector banks, the drop was only 38 basis points, while foreign banks cut rates by 63 basis points.

On existing rupee loans, weighted average lending rates are down 70 basis points for public sector banks and 68 basis points for private banks. But the decline in average deposit rates has been sharper for private sector banks – 100 basis points versus 82 basis points for public banks, according to RBI data.

The RBI has cut the repo rate by 115bp since the outbreak of the pandemic and has followed easy monetary policy to revive the economy and boost demand. Bank deposit rates and lending rates are tied to the RBI repo rate.

It should be mentioned here that public sector banks account for almost three quarters of the market share in both loans and deposits. In addition, credit drawdowns from PSU banks have accelerated faster than private and foreign banks. Several government programs such as the emergency credit line guarantee system for the MSME sector are channeled through the PSU banks. In addition, they have also become more active in retail credit, which has so far been the strong point of private and foreign banks.

However, in line with the RBI’s announcement of its intention to normalize liquidity in January, the State Bank of India, the country’s largest lender, has attempted its own path of normalization by raising its mortgage rates to 6. 95% from April 1 and removing a special regime that offered 6.7% until March 31. Home loans represent a large part of SBI’s loan portfolio.

the Economic time citing market analysts mentioned in a report that the special rate was primarily intended to complement initiatives by several state governments that had lowered the stamp duty on home purchases to incentivize the real estate industry. Since stamp duty concessions are mostly removed, the bank has also reset its previous rates, they said.

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