An article published by the Reserve Bank of India (RBI) suggests that the time is right for all the banks to facilitate an efficient transmission of rate cuts.
In its June Bulletin, the RBI said banks across the country should bring down their lending rates by 50 basis points, following in the RBI’s footsteps that had lowered rates by 50 bps on June 6.
However, RBI added a disclaimer that the views expressed in the Bulletin are those of the authors and don’t represent the views of the central bank.
While most of the banks – including the SBI, Bank of Baroda, and HDFC Bank – have passed on the rate cuts that were announced to customers in February and April, there are some who have either cut 25 basis points or none at all.
In its June 6 jumbo repo rate cut announcement, the RBI had also announced a reduction in the cash reserve ratio (CRR) by 100 bps to 3 per cent of net demand and time liabilities (NDTL) in a phased manner during the latter half of the year.
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“Financial conditions remained conducive to facilitate an efficient transmission of rate cuts to the credit market,” said the central bank’s article on 'State of the Economy' in the June 2025 Bulletin.
The reduction in CRR would allow a flow of about ₹2.5 lakh crore liquidity into the banking system by December 2025.
The article further added that “besides providing durable liquidity, it will reduce the cost of funds for banks, thereby facilitating monetary policy transmission to the credit market”.
The article noted that the 50-bps cut in the policy repo rate during February-April 2025 reflected in banks' repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rate (MCLR).
Consequently, the weighted average lending rate (WALR) on fresh and outstanding rupee loans of banks declined by 6 bps and 17 bps, respectively, during the period February-April 2025.
On the deposit side, the weighted average domestic term deposit rates (WADTDRs) on fresh and outstanding deposits moderated by 27 bps and 1 bp, respectively, during the same period.
The article also pointed out that the decline in the WALR on fresh rupee loans for marginally higher for public sector banks (PSBs) as compared to private sector banks (PVBs).
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