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Charts & Analysis

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

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.

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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:

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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.
  • Murty says:

    It is getting bored. This was discussed at lenght on the popular article on REAL ESTATE TOPICS and you were offended at that time for my alleged writing on behalf of Realtors. Now don’t get angree, if I say you have hidden banks all these times.
    The precise point I was trying to illustrate at that time is now shown in Graphs. Especially, the poor customers were poorer during the whole period, with EMIs going up during the first stage and then, when their earning capacity increased, the duration of the loan remained same, because of not passing the benefit of repo rate reduction. Can we say WHITE COLLAR OFFENCE?

    • Murty says:

      The other side of the coin is the same money was LENT to BIGWIGS, in thousands and lakhs of crored for their ficticious companies, and the NPA of each bank sore like never before. It is public money!

  • mangoman says:

    Finance Minister at it again. He intimidated RBI to cut rates by telling that ‘RBI should understand their mandate in the broader sense’. What a irresponsible statement this has been from the Finance Minister of a country which is struggling to avoid a financial sunami of unimaginable proportions.
    Please also read this….https://www.niticentral.com/2013/07/01/manmohan-singh-is-an-economic-disaster-in-charge-of-mounting-crisis-97761.html
    Shamelessly the UPA government is trying to buy time until the elections by threatening ( almost) RBI to cut the rates. RBI is obliging so far. That is altogether another issue.
    I was shocked to read that we continue to pay huge to our oil imports. Even though they oil commodity prices cooled off. An article in DNA says http://www.dnaindia.com/money/1855943/report-5-years-after-peak-145-oil-india-pays-more-today Rupee has depreciated more than 51% than the time when oil was trading at 145 per barrel. That means we may more than what we were paying to oil few years back.
    But strangely we attack gold. That is soft target and inspite of clearly knowing that people buy gold to hedge against killer inflation which caused by RBI and Government, these so called intelligents blaming people. The opposition is not raising any issue over this gross mis management of economy which baffles me.
    Better late than never. A life of few real estate agents is not important than a country. We have a raise interest rates by atleast 2 percentage and depreciate Rupee atleast upto 70 per dollar. Unless we do this, we all will go to dust.
    If we dont do it on our own we will be forced to take these measures anyway.
    Titbits:
    2500 crores recovered in mumbai most probably belongs to some powerful person and it is anybody’s guess we will never come to know who is behind this? This case will be closed in due course and we mango idiots will shamelessly live in this country……