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Business News/ Money / Personal Finance/  Will banks pass on rate cut benefits to you?
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Will banks pass on rate cut benefits to you?

The transmission of policy repo rate cuts to WALRs on fresh rupee loans of banks has improved marginally since the MPC last meeting, RBI said
  • RBI’s statement in June noted that a 0.5% cumulative cut in February and April resulted in only 0.21% average reduction in fresh rupee loans
  •  (Photo: iStock)Premium
    (Photo: iStock)

    Since February 2019, the Reserve Bank of India (RBI) has reduced the repo rate from 6.5% to 5.4%. However, transmission of rate cuts has been poor in the past. RBI’s statement in June noted that a 0.5% cumulative cut in February and April resulted in only 0.21% average reduction in fresh rupee loans. On past loans, the weighted average lending rate actually went up by 4 basis points or 0.04%.

    In Wednesday’s monetary policy statement, RBI pointed towards more positive data. The transmission of policy repo rate cuts to weighted average lending rates (WALRs) on fresh rupee loans of banks has improved marginally since the monetary policy committee’s (MPC) last meeting, it said.

    Overall, banks reduced their WALR on fresh rupee loans by 0.29% during the current easing phase so far (February-June 2019), the statement added.

    Within hours of RBI’s decision, State Bank of India reduced its marginal cost of funds-based lending (MCLR) rate by 0.15% for all tenures. Bank lending rates, particularly for fresh loans, are linked to MCLR.

    Experts, however, remained sceptical. “There are few specific actions to enhance transmission of policy rates to either the credit or bond markets except for the governor’s assurance that this will happen soon. Also, there was not much clarity on whether the current liquidity situation (characterized by large surplus liquidity) is likely to persist under the new liquidity framework that is due to be announced soon," said Abheek Barua, chief economist, HDFC Bank Ltd.

    Anuj Puri, chairman, ANAROCK Property Consultants Pvt. Ltd, highlighted the potential of the rate cuts to stimulate borrowing in the affordable housing segment.

    “While we won’t see a significant reduction in unsold inventory, affordable housing is another matter. The segment already has various incentives and being very cost-conscious, it may see a perceptible uptick. But, it all depends on how efficiently banks transmit this rate cut to actual consumers," he said. Improving transmission remains key to the success of the latest RBI rate cut.

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    ABOUT THE AUTHOR
    Neil Borate
    Neil heads the personal finance team at Mint. A former colleague called them 'money nerds' and that's what they are. They cover topics like mutual funds, taxation and retirement, all to improve your chances of building wealth. Neil graduated with a degree in law and economics. He passed the CFA Level I exam and began his writing career at Value Research, a mutual fund research firm in 2016. He joined the personal finance team Mint in 2019. Everyday, the Mint Money Team tackles personal finance questions such as where to invest and where to borrow, through articles, charts and reader queries. They also have a daily podcast - 'Why Not Mint Money' and an annual ranking of mutual funds - the Mint 20.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Published: 08 Aug 2019, 12:14 AM IST
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