Improvement in Interest rate transmission

Mumbai: Adjustments in banks' deposit and lending rates in response to changes in the repo rate improved during 2019-20, especially in the second half of the year, the RBI said on Tuesday.

This was catalysed by the mandated linking of the interest rates on new loans to certain sectors such as personal and micro, small and medium enterprises (MSME), effective October 2019, to an external benchmark, the Reserve Bank said in its annual report.

The external benchmark can be the policy repo rate, three-month, six-month T-bill rates or any other benchmark published by the Financial Benchmarks India (FBIL). During October 2019-June 2020, the weighted average lending rate of domestic (public and private sector) banks declined in respect of fresh rupee loans sanctioned for housing loans by 104 basis points (bps), vehicle loans by 102 bps, other personal loans by 115 bps and MSME loans by 198 bps, the report said.