Tuesday, April 20

PSU Banks fully transmit rates on fresh loans

Public sector banks have passed on almost the entire policy rate cut on fresh loans since the pandemic. Weighted average lending rates for fresh rupee loans dipped 114 basis point when policy repo rate fell 115 basis points. Private sector banks on the other hand have passed on less than half the rate cuts.

But in line with the central bank’s announcement of its intention to normalise liquidity earlier in January, the country’s largest lender

has attempted its own way of normalisation by raising its home loan rates which account for a big chunk of its loan portfolio to 6.95 per cent from April 01’21 and done away with the special scheme that offered 6.7 per cent until March’31.

Weighted average lending rates on fresh rupee loans for public sector banks dipped 114 basis points ( one bps is 0.01 per cent) since the pandemic induced lockdown in March 2020 from 8.64 per cent to 7.5 per cent in February’21 , according to the latest data released by the Reserve Bank of India. But private sector banks have not even passed on half the pace. The weighted average lending rates on fresh loans have fallen only 38 bps during the period, while foreign banks have lowered rates by 63 bps.

On outstanding rupee loans, the weighted average lending rates are down by 70 bps for public sector banks and 68 bps for private banks. But average deposit rates fell more sharply for private sector banks-100 banks than for public sector banks whose deposit rates fell by 82 basis points.

The RBI cut its policy repo rate against which the lending rates of banks are benchmarked by 115 bps over the period to 4 per cent. The central bank has been signaling lower rates along with an easy monetary policy to revive the economy and demand as the economy contracted for two consecutive quarters since the lockdown.

Public sector banks, account for nearly 75 per cent of the market share in both loans as well as deposits. They have seen a higher pick up in credit offtake over its private sector and foreign counterparts as a number of government like the Emergency Credit Line Guarantee Scheme -ECLGS- to help the MSME sector during the pandemic and also other initiatives under Atmanirbhar bharat. Besides they have also become more active in retail lending which has so far been the forte of private and foreign banks in the country.

But the public sector major State said in its website that home loan rates are now at 6.95 per cent, 25 bps higher than 6,7 per cent offered as a special scheme until March 31’21. Market analysts say that the special dispensation of lower rates was mainly to compliment initiatives of many state governments which lowered stamp duty on home purchases to incentivise the real estate sector. Since the stamp duty concessions are done ways with, the bank has also restored its earlier rates, they said.


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