Mumbai: Despite the two consecutive cuts in the Reserve Bank of India (RBI) and sufficient liquidity injections, banks have not lowered the company's loan interest rates. Unlike retail floating rate loans related to repurchase rates (interest rates on which central banks lend to banks), a company’s loan contract is related to marginal funds-based loan interest rates (MCLRs) and has not yet lowered its equivalent monthly installment (EMIS).
According to the latest data released by the Reserve Bank of India, the median year MCLR remained unchanged at 9% in April and has remained at 9% since November, except for February, when it grew to 9.05%. This means that MCLR borrowers are not seeing a decrease in their EMI. Nearly 36% of all floating-rate loans are priced at the price of MCLR, while more than 60% of loans are purchased at the price of external benchmarks (EBLRs), such as buyback rates or 10-year government bonds.
CS Setty Chairman National Bank of India told at its Q4FY25 earnings press conference DC“The reduction in MCLR will depend on a gradual decline in deposit fees. Maybe we may see some MCLR movement after two quarters, which is what I believe.” Setty said if SBI's domestic loans total, the interest rate is about 31.77%, which is related to the MCLR, while 29% of the loans are related to the external benchmark (the repurchase rate).
The central bank has lowered the policy repurchase rate by 50 basis points since February, and has injected lasting liquidity into Rs 8.6 lakh since December 2024 to ensure effective transfer of policy rate cuts into loan and deposit rates. In April, liquidity in the banking system has now shifted to a surplus of Rs 1.4 lakh (a deficit of Rs 1.24 crore in March).
In the case of reconnecting the reference rate, the transmission of the RBI reduction rate will occur very quickly. In the case of MCLR connection rates, the transmission depending on the bank deposit cost occurs in a lag.
