Banks have fully passed on the benefits of lower policy rates set by the banking regulator to customers, contrary to the picture the Reserve Bank of India projected earlier when it expressed disappointment over banks not passing on the benefits.
Commercial banks have lowered their benchmark lending rates by 110 basis points between April 2016 and September 2017 while RBI lowered the repo rate by 50 basis points in the same period, data released by the central bank on Tuesday showed.
All commercial banks have lowered their benchmark lending rates MCLR or marginal cost of lending rate during the period from an average of 9.50 per cent in April 2016 to 8.40 per cent in September 2017, it showed.
This data pertains to MCLR with one-year reset clause. Even the weighted average lending rates between April 2016 and August 2017 were down 64 basis points as against 50 bps cut in policy rates by RBI.
“This shows that we are ahead of cycle and we have transmitted rates,” said a bank chief who did not want to be named.
While state-ow ned banks reduced one-year MCLR by 110 bps in the last 18 months, private banks have reduced rates by 85 bps from 9.80 per cent to 8.95 per cent and foreign bank lowered MCLR by 90 bps from 8.98 per cent to 8.08 per cent, the RBI data showed.
The sharp reduction in lending rates followed huge inflow of deposits to banks after government banned Rs 1,000 notes and Rs 500 and is partly due to absence of demand for loans.
Recently, RBI proposed that banks should benchmark their lending rates to external rates to bring about transparency in pricing of loans.
Speaking on the rationale for linking lending rate to external benchmark, RBI deputy governor Viral Acharya said: “We think that the internal benchmarks like the base rate or the MCLR, based on data, seem to give banks a very high amount of discretion lot of factors that are flexible for them to ensure that lending rates can be kept high even when monetary policy rates are going down an accommodative path.”