Who wrote this article?

Deepak Shenoy, Capitalmind's research team.

Chart: Base Rates of Indian Banks Don’t Respond Quickly When RBI Cuts Rates

2 Jul 2013Deepak Shenoy1 min read

Quick Facts

What is "Chart: Base Rates of Indian Banks Don’t Respond Quickly When RBI Cuts Rates" about?
What category is this article in?: Charts And Analysis
Who wrote this article?: Deepak Shenoy, Capitalmind's research team.
When was this article published?: Published 2 July 2013.
How long does this article take to read?: 1 min read
What topics does this article cover?: Banks, Charts

Since RBI introduced the base rate in 2010, Banks are not allowed to lend below that rate. Take a look at how banks have moved their rates in response to RBI rate hikes and cuts.

Source: RBI Lending Rates.

The above chart includes all banks, including foreign banks whose lending rates tend to be lower. Looking at just Indian banks, here’s the situation:

A few quick observations:

Everyone pushed rates up immediately as RBI increased the Repo rate.
On the way down, though, most banks have dithered, with only tiny decreases in their base rates.
Private banks seem to hve responded better than public sector banks (though SBI is a big exception)
Lastly, notice that the corridor between 8 and 9.5% is totally empty. In this rate corridor, much of the shorter term lending (less than 1 year) trades in the Commercial Paper market. Good companies even see long term bonds in this range (For example, a Sterlite 2023 bond today traded at 9.15%) So for corporates, it makes a lot more sense to issue CP or bonds than wait for banks to bring down their lending rates. Should this change happen significantly, we’ll see banks react immediately.