Trends show lending rates have hardly declined

Amid high expectations of interest rate reductions, an analysis of past data throws up a contrasting trend.
Image used for representational purpose only. (File | PTI)
Image used for representational purpose only. (File | PTI)

Amid high expectations of interest rate reductions, an analysis of past data throws up a contrasting trend.

During December 2018, there was a marginal decline in fresh lending rates led by state-run banks, even though weighted average term deposit rates remained flat over the previous month. Interestingly, the gap between outstanding loan and fresh loan rates increased 10 basis points (bps) over November 2018, while term deposit rates increased 35 bps to 6.9 per cent over the previous year.

According to data collated by Kotak Institutional Securities, the weighted average term deposit rates have been flat for the last three months. Term deposit rates saw upward movement starting November 2017 till March 2018 by 20 bps to 6.7 per cent but were flat thereafter with a marginal 15 bps rise until September 2018 and additional 10 bps in subsequent three months.

Deposit rates are expected to remain stable over the near term, though a gradual rise in CD ratio might push some private banks to raise them in an environment of strong loan growth.

On the other hand, lending rates saw a marginal month-on-month decline of 10 bps in December 2018 to 9.8 per cent, partly led by the impact of a reduction in NBFC lending. The gap between outstanding and fresh lending rates increased 10 bps MoM in December 2018 to 60 bps, while the gap has been in the range of 50-70 bps over July-December, 2018.

“The gap converged at a sharp pace in the last two months post increasing in December 2018 largely led by a decline in fresh loan rates. Spreads for PSU banks remained flat MoM at 0.6 per cent in December 2018 while that of private banks increased 5 bps MoM to 0.7 per cent,” Kotak noted.

Related Stories

No stories found.
The New Indian Express
www.newindianexpress.com