Rate transmission higher in PSBs than private banks, says RBI Bulletin

Rate transmission is important as actions to curb or increase demand are effective only when banks pass on the rate cues to customers.

The rate transmission is higher in public sector banks (PSB) than that of private banks, the Reserve Bank of India’s (RBI) bulletin for April 2024 showed. “The transmission across bank groups indicates that the increase in the deposit and lending rates was higher in the case of PSBs. The lending rates of PSBs continued to remain lower than those of private banks while their deposit rates were higher,” it said.

The RBI Bulletin is a monthly publication that offers insights into the developments in domestic and global economies but doesn’t represent the views of the central bank.

Rate transmission

In the latest MPC meeting on April 5, RBI Deputy Governor Michael Patra said that some rate transmission is happening through banks. “If you look at transmission from April 2023 to February 2024, there is still transmission going on. We are still seeing some transmission going through. We feel that (if) mobilising of deposits takes place at higher and higher rates, there will be more transmission,” Patra said at the post MPC press conference.

Rate transmission is important as actions to curb or increase demand are effective only when banks pass on the rate cues to customers. Effective rate transmission is crucial for the central bank’s inflation management.

Lenders hiking rates

Earlier, Moneycontrol reported that a clutch of banks and non-banking financial companies (NBFCs) have upped their lending and deposit rates in recent weeks following the central bank's call for increased monetary policy transmission.

Also read: Banks, NBFCs hike lending and deposit rates as RBI pushes for monetary transmission

For example, Bank of Baroda on April 10 increased its lending rates by 5 basis points across selective tenures. HDFC Bank too increased its repo-linked home loan interest rates by 10-15 basis points to a range between 9.05 percent to 9.8 percent in March 2024.

Some NBFCs hiked their interest rates on fixed deposits (FDs). Bajaj Finance on April 9 hiked its interest rates by 60 bps on most tenures. Similarly, Shriram Finance raised its interest rates on FDs by 0.05 to 0.20 bps.

One basis point is one-hundredth of a percentage point.