Seeing some rate transmission going through banks, says RBI DG

RBI Deputy Governor Swaminathan J said that transmission is playing out and it would happen over a period of time.

The Reserve Bank of India (RBI) is seeing some rate transmission happening through banks, deputy governor Michael Patra said on April 5.

“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.

The MPC left the key repo rate unchanged at 6.5 percent for the seventh time in a row, in line with the market expectations. It also left the stance unchanged as withdrawal of accommodation. The decisions were takes with a 5:1 majority.

RBI deputy governor Swaminathan J said transmission was playing out and would happen over a period of time. “ Rate transmission is happening and we would like it to continue in that manner,” Swaminathan said.

In October 2023, RBI governor Shaktikanta Das said the 250 basis points  (bps) increase in the policy repo rate — at 6.5 percent — wasn’t fully reflected in bank lending and deposit rates.

Also read: Banks yet to fully pass on RBI rate hikes to customers, shows data

"The transmission of the 250 bps increase in the policy repo rate to bank lending and deposit rates is still incomplete,” Das said during the customary post MPC press conference in October. “Hence, the MPC decided to remain focused on withdrawing accommodation. The MPC remains highly alert and prepared to undertake timely policy measures, as necessary, to align inflation with the target and anchor inflation expectations.”

Action by banks

Recently, some banks have hiked their lending rates. HDFC Bank, the country’s largest private sector bank, hiked its lending rates by 10-15 bps.

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

In 2023, State Bank of India, the country’s largest lender, increased its term deposit rate to 6.5 percent in February from 5.5 percent in June 2022. According to the bank’s website, the lending rate rose to 8.75 percent in October from 7.70 percent in May 2022.

Punjab National Bank increased its external benchmark-linked lending rate (EBLR)-linked lending rate to 9.27 percent in December 2023 from an average of 7.42 percent in June 2022.

PNB’s website showed that the average rate increased from 7.42 percent in May 2022 to 7.92 percent in June and 8.42 percent in August. It jumped to 8.92 percent in October and peaked at 9.27 percent in February 2023.

Bank of Maharashtra’s marginal cost of funds-based lending rate on average stood at 8.34 percent, whereas its repo rate-linked lending rate stood at 9.3 percent. In the current tightening cycle, the lender’s data showed an average increase of 30 bps in rates.