Despite 2 rate cuts, charges on outstanding loans jump

The weighted average lending rate (WALR) on the outstanding loans by the banks has increased by 4 basis points (BPS) in past four months, despite the repo rate cuts of 50 bps by the Reserve Bank.

“However, the WALR on outstanding rupee loans increased by 4 bps as the past loans continue to be priced at high rates,” the RBI said in its Monetary Policy Statement.

Interest rates on longer tenor money market instruments remained broadly aligned with the overnight WACR, reflecting near full transmission of the reduction in the policy rate, the bank added.

However, the transmission of the cumulative reduction of 50 bps in the policy repo rate in February and April 2019 was 21 bps to the weighted average lending rate (WALR) on fresh loans.

The RBI, in its February and April policy meets, had reduced the repo rate by 25 basis points each.

According to the experts, the liquidity crunch in the financial system arising out of the shadow banking crisis has been the major factor that has been preventing full transmission of the rate cuts to the ultimate customers.