Informist, Wednesday, Dec 7, 2022
MUMBAI – The Reserve Bank of India is keeping a close watch on the process of transmission as the pace of transmission of monetary policy actions to lending and deposit rates has quickened in the current tightening phase that started in May, Governor Shaktikanta Das said today.
The central bank today raised the repo rate by 35 basis points to 6.25%, taking the total increase in its policy rate to 225 bps since May.
Between May and October, the weighted average rates on fresh and outstanding rupee loans rose by 117 bps and 63 bps, respectively, Das said. During this period, the RBI had increased the repo rate by 190 bps.
On the other hand, the weighted average rates on fresh and outstanding domestic term deposits rose by 150 bps and 46 bps, respectively, in the six months ended October.
“We are keeping a close watch on this process of transmission,” Das said. However, he also said that the RBI does not give direction to banks with regard to credit and deposit rates on either side.
Taking a cue from the RBI’s decision, Indian Bank raised the repo-linked lending rate to 6.25% from 5.90% with effect from Thursday.
Banks have been prompt in increasing lending rates–with most fully transmitting the repo rate hikes into loans priced on external benchmarks, but they have been slow in increasing deposit rates, analysts said.
However, continued demand for loans, coupled with strain on systemic liquidity, has forced lenders to increase deposit rates, especially on term deposits, in a bid to mobilise resources to meet their growth requirements.
Latest RBI data shows that loan growth in the banking system was at 17.2% as on Nov 18, while deposit growth continued to lag at 9.6%. Such a wedge has been prevalent for a few months now.
On this, Das said that credit and deposit growth has to be seen in the context of base effects.
“During the whole period of the pandemic or even last year there was hardly any credit growth, it was 5-6%, low base. But deposit growth had picked up in the first two years of the pandemic. So whatever is happening now on the deposit side, growth has to be seen in the context of the base effect,” he said.
He said that banks have their own assessment and depending on their requirement for funds and asset-liability management, they take necessary actions on credit and deposits. End
Reported by Kshipra Petkar
Edited by Ashish Shirke
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