Two Rate Cuts by RBI in 2015: No Rate Reduction by 70 Banks

No rate reduction by about 70 banks despite 2 rate cuts by RBI..!

Earlier this April month, RBI Governor Mr. Raghuram Rajan was very critical of Indian banks for not passing on the rate cut benefits to the borrowers.

As many as about 70 banks, including 23 public sector lenders, have not passed on the benefits to their consumers from RBI’s 2 rate cuts so far in 2015.

Reserve Bank of India (RBI) cut the repo rate by 0.25% on 2015 January 15 & further by 0.25% on March 4, 2015

Out of 91 scheduled commercial banks in India, a total of 21 banks have lowered their base rates after RBI’s rate cut decisions, Minister of State for Finance Mr. Jayant Sinha said. These include 4 public sector banks, 6 from the private sector and 11 foreign banks.

The reduction in base rates has been in the range of 0.1% to 0.5% so far. This leaves as many as 70 banks that have not lowered their rates, despite RBI easing its monetary stance twice.

“Following the reduction in the policy rate, out of 91 scheduled commercial banks, 21 banks reduced their base rates in the range of 0.1% to 0.5% so far (up to April 15, 2105),” said Mr. Sinha, in a written reply to a Rajya Sabha question.

Accordingly, he said, the weighted average lending rates on fresh rupee loans sanctioned by banks for home loan and vehicle loans have also come down in the range of 8.53 basis points during the same period.

There are 27 public sector banks, 20 private sector and 44 foreign banks with scheduled commercial bank license in India.

PSU banks have 70% market share. In RBI’s last monetary policy meeting earlier this April month, Governor Mr. Raghuram Rajan was very critical of banks for not passing on the rate cut benefits to the borrowers.

A recent study paper from the International Monetary Fund (IMF) also pointed out that banks in India resist passing on RBI’s rate cuts to consumers, although they are rather quicker in responding to rate hikes by the central bank RBI. It takes 13 months on an average for pass-through from a change in the RBI’s policy rate to the interbank rate.

Thereafter, it takes over nine months for change in deposit rates for customers & a much longer period of nearly 19 months in case of lending rates, the study found.

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