Decline led by 20 bps slump in rates of PSBs as banks reduced lending to the troubled NBFC sector,
The cost of raising fresh funds from banks may get cheaper as fresh lending rates dropped by 10 basis points in March, largely led by a drop in rates of public-sector banks coupled with stable deposit rates.
The fresh lending rates for scheduled commercial banks (SCBs) dropped by 10 basis points (bps) month-on-month (m-o-m) to 9.7% in March led by a 20 bps drop in rates of public-sector banks (PSBs) as banks reduced lending to the troubled non-banking financial company (NBFC) sector.
“Increase in fresh lending rates is unlikely from here as most banks focus on higher share of low-yielding retail products and lending to better-rated companies,” experts at Kotak Institutional Equities said.
According to latest data by the Reserve Bank of India (RBI), the average deposit rates for SCBs in March at 6.9% was flat over the previous month. However, it was higher by 20 bps year-on-year. “Deposit rates are expected to remain stable over the near term, though gradual rise in the CD ratio may push some private banks to raise deposit rates in an environment of strong loan growth,” the report stated.
Private banks, towards the end of FY19, were operating with an average CD ratio of 90% — highest in over a decade.
However, loan growth trends for SCBs may remain muted as corporates are now finding it cheaper to raise money from the Indian debt markets. Average yields in April have been lower than the marginal cost of fund based lending rate (MCLR) —the rate below which a bank cannot lend.
The systemwide average MCLR for scheduled commercial banks in April amounted to 8.74%, 9 bps higher than the average corporate bond yield.
Yields across ratings and maturities averaged at 8.65% in April 2019, according to a Care ratings report.