Deposit ratesPast experience suggests that banks increase lending rates at a faster pace when RBI increases its policy rates compared to increase in their deposit rates. On the other hand, when RBI reduces rates, the pace of reduction of lending rates by banks is slower compared to the pace of reduction of deposit rates. Borrowing ratesWhile historically a rate cut transmission in lending rates have been slower, it may not have any immediate impact this time given that the banks may not lower deposit rates, which impact lending rates of banks. Accordingly, if there is no impact on deposit rates, lending rates are also unlikely to go down. The lending rates for new loans since April 2016 are decided based on the marginal cost of funds-based lending rate (MCLR).

Source: Mint February 07, 2019 18:11 UTC