PSU banks pass on rate cuts on new loans in full
But in line with the central bank’s announcement of its intention to normalize liquidity earlier in January, the country’s largest lender
attempted its own path of normalization by increasing its mortgage rates which represent a large part of its loan portfolio to 6.95% from April 1, 21 and removed the special regime which offered 6.7% until March, 31st.
Weighted average lending rates on new rupee loans for public sector banks have fallen 114 basis points (one basis point is 0.01%) since the pandemic-induced foreclosure in March 2020, from 8 basis points. , 64% to 7.5% as of Feb 21, according to the latest data released by the Reserve Bank of India. But private sector banks haven’t even gone over half the pace. Weighted average lending rates on new loans fell only 38 basis points over the period, while foreign banks cut rates by 63 basis points.
On outstanding rupee loans, weighted average lending rates are down 70 bps for public sector banks and 68 bps for private banks. But average deposit rates fell more sharply for private-sector banks-100 banks than for public-sector banks, whose deposit rates fell by 82 basis points.
The RBI cut its key rate on which banks’ lending rates are compared over the period by 115 basis points to 4%. The central bank has signaled lower rates along with an accommodative monetary policy to revive the economy and demand as the economy has contracted for two consecutive quarters since the lockdown.
Public sector banks account for nearly 75 percent of the loan and deposit market share. They have seen a larger increase in drawdowns of credit from its private sector and overseas counterparts such as a number of governments like the Emergency Line of Credit Guarantee Program -ECLGS- to assist the MSME sector during the pandemic and also other initiatives within the framework of Atmanirbhar bharat. In addition, they have also become more active in retail lending which has so far been the strong point of private and foreign banks in the country.
But the great state of the public sector
said on its website that mortgage rates are now 6.95%, which is 25 basis points higher than the 6.7% offered under a special program through March 31, 21. Market analysts say the special lower rate waiver was primarily to complement initiatives by many state governments that have lowered stamp duties on home purchases to incent the real estate industry. Since the stamp duty concessions were removed, the bank has also restored its previous rates, they said.