'Banks passed 29 bps of RBI's 110 bps cut to customers'

Borrowers haven't benefitted much despite five consecutive repo rate cuts by the Reserve Bank of India as the banks had transmitted only 29 basis points of the rate cut to end customers.

This, in other words, means that the borrowers haven't got much relief as they have benefitted only 26% of the total rate cut announced by the Reserve Bank since the beginning of this year. The Central Bank had announced 110 basis points rate cut in the current financial year till now. With the present rate cut, the number has gone 135 basis points.

The data provided by the RBI also shows that despite the unconventional rate cut of 35 basis points by the Reserve bank in the August meeting, the benefit passed on the borrower was just 9 basis points. The highest transmission had happened with the first-rate cut when 25 bps cut had led to 24 bps cut in the weighted average lending rate on fresh loans by 24 bps.

After 25 bps rate cut in the April MPC meeting, the lending rate for the borrowers had gone up by 13 bps, after two subsequent rate cuts amounting to 60 bps by the Reserve Bank, the lending rate had gone down by 18 bps -- a mere 30%.

The central bank, on its part, attributed the less transmission to the higher deposit rates.

"The inadequate transmission essentially reflects the slow adjustment in bank term deposit rates," RBI said in its monetary policy report.

The RBI data shows that the weighted average domestic term deposit rate has come down by a mere 4 bps in the February to September period.

In fact, after the recent 35 bps rate cut, the deposit rates have pushed up by 2 bps.

The experts suggest that the banks are not willing to reduce the deposit rate owing to the increased competition.

The data by RBI, further shows that among the various loan groups, the lending rate of 9.54% in the personal housing space was the lowest in August, while the small personal loans were the highest -- 12.57%. The average lending rate for industries stood at 10.15%, while for the embattled MSMEs, the number stands at 11.21% despite a number of efforts by the government.