Banking Interest Rates Spread Narrows As Deposit Rates Inch-up

The credit growth had been muted from February 2020 to July 2021 due to the Covid-19 outbreak and deleveraging of balance sheet by large corporates. However, the credit offtake seems to have improved recently as business activities are picking up and corporates are showing interest for re-leveraging, CareEdge has said.

"Credit growth has been buttressed by retail and MSME loans. As a part of policy support, RBI had reduced policy rates in the earlier part of the pandemic and consequently, interest rates in the banking system have generally trended lower. However, the interest rate transmission has been uneven with PSBs passing the rate cuts quicker than the PVBs," CareEdge has said.

According to the CareEdge Report, Interest rate transmission continued between December 2020 and December 2021 as lending rates declined, while the bank rate has held steady for the similar period. The decline in PSBs has been lower as compared to PVBs, but the absolute PVB rates continue to be significantly higher compared to the PSB rates.