Interest Rates Across Loan Products Are At New All-Time Low: RBI Data

Driven by the RBI's policy rate cut to historic lows amid Covid 19 blues and ample liquidity in the system, interest rates across loan products have now hit a new low. As per the latest RBI data, the weighted average lending rate (WALR) on outstanding bank loans in India has edged below 10% level for the first time and stood at 9.89% for April month.

Interest Rates Across Loan Products Are At New All-Time Low: RBI Data

And for different set of banks lending rate is offered with a marginal difference. Say, for instance, for PSBs interest rate on existing loans stands at 9.33%, while in case of foreign banks it is at 9.35%. But for private players who need to dole out a higher payment on deposits because of intense competition in the market, interest rate on existing loan is a tad higher at 10.9%.

As per the analysis of RBI data, since February 2019 when the RBI took to rate cutting spree, the WALR on current loans has traversed lower by 37 bps. 1 basis point is one-hundredth of a percentage point.

This rate cutting measure and its consequent transmission in case of new loans has resulted in an even more sharp reduction of 151 bps. The repo rate currently stands at 4%, which in January 2019 was at 6.5%, a steep reduction by 250 bps in a matter of just 1.5 years. So, WALR on new loans stood at 8.3% in April month. What is interesting here is that foreign banks offer loans at the lowest rate, with WALR at just 7.73%

In case of PSBs or public sector banks, WALR on fresh or new loans is at 8.04%, while it is 8.91% in case of domestic private banks.

Further when it comes to deposits at bank, foreign banks offer the lowest return of 4.67%, PSBs offer 6.04% and that at private banks is higher at 6.32%.

Worth mentioning here is that decline in loan interest rate shall not be beneficial for all customers. "Despite the decline in interest rates, the demand for bank credit is low currently with borrowers unwilling to take on liabilities amidst the economic and business uncertainty. Also, the benefit of lower rates may not accrue to all segments of borrowers as banks being risk-averse tend to be selective in their lending," says Kavita Chacko, Senior Economist at CARE Ratings

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