Banks, led by public sector lenders, are increasingly leaning on higher-interest retail loans to protect margins, pushing up fresh lending rates for a second consecutive month. The weighted average lending rate (WALR) on fresh rupee loans of scheduled commercial banks rose 32 basis points (bps) to 8.71% in November from 8.39% in September, Reserve Bank of India data showed. Fresh lending rates increased in both October and November.
Portfolio Rebalancing
“The primary reason for the rise in weighted average lending rates is the changing mix in the lending portfolio,” Sachin Sachdeva, vice president, sector head-financial sector ratings at ICRA said. He added that banks could be tapping segments such as MSMEs, non-bank financial companies, among others to get a better price. According to the sectoral deployment data, bank lending to industries and NBFCs in November was up 9.6% and 9.5% on year, respectively.
In December, RBI Governor Sanjay Malhotra too had said that the rise in average lending rates may not necessarily show an increase in rates across loan segments. “Housing loans may be as low as 7.5% or 8%, whereas some unsecured loans may be much higher, around 10–11%. If the share of such loans goes up, the average interest rate rises even if rates across segments have come down.”
Public vs. Private
Among bank groups, public sector banks raised their WALR on fresh loans by 16 bps in November, while rates at private sector banks were unchanged. Foreign banks cut their fresh lending rates by 6 bps during the month. In contrast, lending rates on existing loans continued to ease. The WALR on outstanding rupee loans fell to 9.21% in November from 9.24% in October. Since the repo rate cut in February, banks have reduced lending rates on outstanding rupee loans by 59 basis points.
Transmission of policy easing through benchmark-linked loans continued to improve. The one-year median MCLR moderated to 8.45% in December from 8.50% in November. The share EBLR loans in outstanding floating-rate rupee loans rose to 64.8% in September from 62.9% in June, while the share of MCLR-linked loans declined to 32.2% from 33.8%.
On the deposit side, the weighted average domestic term deposit rate on fresh rupee deposits edged up 2 basis points to 5.59% in November, while rates on outstanding deposits fell to 6.73% from 6.78% in October.
