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Key Points

The Reserve Bank of India's recent monetary policy has triggered a significant reduction in bank lending rates during July. Crisil Research reports a notable easing in key lending rates, with the one-year marginal cost of funds-based lending rate dropping to 8.75%. Systemic liquidity continued to remain surplus, supported by increased government spending and declining currency circulation. The developments suggest improving financial conditions and potential economic recovery.

Key Points: RBI Rate Cuts Drive Bank Lending Rates Lower in July

  • RBI's policy rate cuts lead to 15 bps drop in one-year MCLR
  • Weighted average lending rate falls to 8.62% in June
  • Systemic liquidity remains in surplus for fourth consecutive month
  • Credit growth picks up in personal loans, services, and industry segments
2 min read

Bank lending rates dip in July on the back of RBI rate cuts

Crisil Report Reveals Softening Lending Rates and Improved Financial Conditions Amid RBI's Monetary Policy Adjustments

"Bank credit growth has improved in the past two months - Crisil Research Report"

Mumbai, Aug 13

Softer lending rates in the Indian economy due to the transmission of the RBI's repo rate cuts to other rates, such as bank lending rates and deposit rates, continued in July, leading to an improvement in financial conditions during the month, according to a report released on Wednesday.

Key bank lending rates, such as the one-year marginal cost of funds-based lending rate (MCLR) and auto loan rate, eased 15 bps to 8.75 per cent and 7 bps, respectively to 9.19 per cent, while deposit rates eased 3 bps to 6.37 per cent during the month making it cheaper for banks to raise funds, the Crisil Research report said.

The weighted average lending rate (WALR) on fresh rupee loans has eased sharply as well. As per the latest available data, the WALR eased 58 bps on-month to 8.62 per cent in June, the lowest since October 2022.

The surplus in systemic liquidity also inched up in July, led by increased government spending and a decline in currency in circulation, pulling down money market rates further.

The RBI's Monetary Policy Committee (MPC) reduced the policy rate by 100 basis points (bps) between February and June. As lending rates eased, bank credit growth improved, but remained weaker than in the January-March quarter.

Bank credit growth has improved in the past two months now. Sectoral data, available till June, indicates credit growth picked up in the personal loans, services and industry segments.

However, concerns about US tariffs weighed on markets ahead of the August 1 deadline, with equity markets ending July lower than June. Foreign portfolio investors (FPIs) were net sellers of equities.

The 10-year government security (G-sec) yield saw an uptick towards the end of the month, driven by mild FPI outflows in debt in the second half of the month. The yield rose in June and July despite rate cuts, leading to a sharp rise in the term premium.

For the fourth straight month, systemic liquidity remained in surplus, which widened a tad in July compared with June. The RBI net absorbed Rs 3 lakh crore in July, slightly higher than the Rs 2.7 lakh crore in June. The higher surplus was supported by an increase in government spending and a decline in currency in circulation, the report said.

Another positive for the economy was that crude oil prices remained broadly stable at $71 per barrel from $71.5 amid the Organisation of the Petroleum Exporting Countries and allies increasing oil output, the report added.

- IANS

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Reader Comments

P
Priyanka N
As a small business owner, I'm happy to see lending rates coming down. But banks still ask for too much collateral and paperwork. Hope this credit growth translates to easier loans for MSMEs like mine.
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Aman W
The deposit rates are falling faster than lending rates! This is unfair to senior citizens like me who depend on FD interest for monthly expenses. Banks are quick to cut our returns but slow to pass benefits to borrowers.
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Shreya B
Good move by RBI but we need to watch inflation carefully. With monsoon being erratic this year, food prices may rise. The last thing we need is stagflation - low growth with high prices. Policy makers have a tough balancing act!
K
Karan T
The auto loan rate reduction is timely with festival season coming. Planning to buy my first car this Diwali 🚗. Hope dealers pass on the full benefit and don't just increase discounts to adjust for lower interest rates.
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Nisha Z
While the rate cuts are welcome, I'm concerned about the FPI outflows mentioned. We need stable foreign investment for long-term growth. The government should address whatever is making foreign investors nervous about Indian markets.

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