The Reserve Bank has said that monetary transmission improved significantly post demonetisation, though asymmetric across sectors, reflecting varied credit conditions and risk appetite.
Since January 2015, lending rates across sectors, barring the credit card segment, declined in the range of 15-238 basis points (bps), with the largest transmission taking place in the case of rupee export credit.
Repo rate cutInterest rates on fresh rupee loans declined significantly in respect of housing, personal loans and vehicle loans in the commercial segment during January 2015 to June 2017.
The policy repo rate was cut by a cumulative 175 bps during January 2015 to June 2017. In response, banks reduced their weighted average domestic term deposit rate by 126 bps during January 2015 to October 2016.
The weighted average lending rate on fresh rupee loans and outstanding rupee loans declined by 97 bps and 75 bps, respectively, during the same period.
The reduction in the weighted average domestic term deposit rate was significantly higher than that in the lending rates.
Buoyed by the surplus liquidity, the share of current account and savings account (CASA) deposits in aggregate deposits increased to 40.6 per cent as at end-March 2017 from 35.2 per cent at end-October 2016, before declining to 38.6 per cent on June 23, 2017.
Borrowing costs downAs the cost of CASA deposits (3.2 per cent) is significantly lower than the weighted average domestic term deposit rate, the overall cost of borrowings declined, enabling banks to cut their lending rates.
Banks also lowered their median term deposit rate by 56 bps during November 2016 to June 2017. As a result, the rate on fresh rupee loans declined by 98 bps, while that on outstanding rupee loans declined by 42 bps.