New Delhi [India], October 23 (ANI): Banks have passed on 93 basis points (bps) of lending rate reductions to borrowers against the Reserve Bank of India's (RBI) cumulative 125 bps cut in the policy repo rate between February 2025 and March 2026, according to the RBI's October 2026 Bulletin released on Friday.
The Bulletin highlighted that the weighted average lending rate (WALR) on fresh loans declined by 93 bps during the period, reflecting the transmission of monetary policy easing to bank lending rates.
According to the RBI study, the reduction comprised an 80 bps interest rate effect and a 13 bps composition effect, indicating that both changes in lending rates and shifts in the composition of bank credit contributed to the overall decline.
"In response to a cumulative reduction of 125 basis points (bps) in the policy repo rate, the WALR on fresh lending declined by 93 bps, with interest rate effect of 80 bps and composition effect of 13 bps during February 2025 to March 2026," the Bulletin stated.
The study, titled "Transmission to Lending Rates of SCBs: Price versus Composition Effects in WALR," examined how changes in lending rates and credit composition across banks and sectors influence the transmission of monetary policy.
It noted that movements in aggregate lending rates reflect both repricing of loans and changes in credit composition, highlighting the importance of considering both factors while assessing monetary policy transmission.
Meanwhile, the Bulletin's State of the Economy article highlighted that India's economy continued to demonstrate strength, supported by high-frequency indicators across industrial and services sectors.
However, renewed geopolitical tensions in West Asia and supply chain disruptions have intensified global inflationary pressures, prompting major central banks to raise policy rates.
The Bulletin also noted that India's headline Consumer Price Index (CPI) inflation increased in September, driven by broad-based rises in food, fuel and core inflation components.
On the external sector, double-digit growth in merchandise exports during the first six months of FY27 helped narrow the trade deficit, while foreign direct investment (FDI), external commercial borrowings (ECB) and remittance flows strengthened in August.
Separately, the Bulletin highlighted continued double-digit credit growth in the non-banking financial company (NBFC) sector at the end of December 2025, alongside improving asset quality reflected in declining non-performing asset ratios.
The RBI clarified that views expressed in the Bulletin articles belong to their respective authors and do not necessarily represent the central bank's official position. (ANI)
Banks pass on 93 bps rate cut to borrowers against RBI's 125 bps repo reduction: RBI Bulletin
