Borrowers pay higher interest despite repo cuts by RBI

Borrowers pay higher interest despite repo cuts by RBI

 Reserve Bank of India (RBI). Reuters file photo

The borrowers continue to pay higher interest rates on their loans, despite three consecutive rate cuts by the Reserve Bank of India (RBI).

According to the data available with the RBI, the Marginal Cost of Funds based Lending Rate (MCLR) stand in the range of 8% to 8.40% during the month July 2019, 10-25 basis points (bps) higher than 7.9% to 8.05% interest rates prevalent a year ago.

According to the data collated by the Kotak Institutional Equities, of the 36 public and private sector banks, only six banks – Bank of Maharashtra, Punjab National Bank, Syndicate Bank, United Bank, Bandhan Bank and Kotak Mahindra Bank – have seen their respective MCLRs below the level that existed in July 2018.

According to the DH analysis of the data provided by the Kotak, the average interest rates of all 36 banks in the current month stand at 9.01%, 14 basis points (bps) higher than 8.87% a year ago.

It is pertinent to note that, while current repo-rate – the rate at which bank borrow from RBI – last year was at 6.25%, it currently stands at a nine-year low. In fact, RBI governor has time and again being conveying his unhappiness to the bank chiefs for not being able to transmit the interest rate benefits to end customers.

Despite the RBI slashing key rates, the banks, according to the analysts are marred by the liquidity problem and high deposit rates in the competitive environment. “Deposit rates have remained stable in recent times as banks have found it challenging to pass through rate cuts given their tight liquidity conditions,” Kotak said in its report.

In fact, the data available with the Reserve Bank goes on to prove this assertion. The RBI data shows that term deposit rates in the current month stand in the range of 6.25% to 7.3%, 30 bps more than July 2018.