Since February 2019, in the easing cycle, the policy repurchase has decreased by 135 basis points (bps), and most banks have lowered the fixed rate; some banks have also reduced the savings deposit rate. Overall, between February 2019 and January 2020, the weighted average domestic time deposit rate (WADTDR) fell by 39 basis points. The weighted average rate (WALR) for fresh rupee loans fell by 61 basis points, while the weighted average loan interest rate for outstanding rupee loans fell by 12 basis points. Between February 2019 and January 2020. During this period, the monetary policy stance changed from a calibrated austerity policy to a neutral attitude in February 2019, and then to a loose policy in June 2019.

However, according to a recent monthly announcement by the Bank of India, at the bank level, the transmission of deposit and loan interest is uneven, reflecting special factors. As far as WADTDR is concerned, foreign banks experienced the largest decline, with 124 basis points, followed by private sector banks (51 basis points) and public sector banks (29 basis points). Similarly, among fresh rupee loans, WALR fell the most in foreign banks (105 basis points), followed by public sector banks (62 basis points) and private banks (50 basis points). Foreign banks again noticed the largest decline in outstanding rupee loans was 46 basis points, and public sector banks fell by 21 basis points between February 2019 and January 2020.

WADTDR's outstanding deposits continued to decline until September 2019. However, the WADTDR has declined sharply since October 1, 2019, when new floating rate loans for retail and micro and small business (MSE) loans were linked to external benchmarks. The announcement added that between October 2019 and January 2020, It has fallen by 32 basis points, compared with only 7 basis points in the past eight .

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Although the transmission of money markets and long-term interest rates has been and almost complete, the transmission of deposit and loan interest rates has been ignored. It said that a key factor in the rapid and adequate transfer of bank loan interest rates was the long-term maturity of fixed-rate bank deposits. Even so, banks have been slow to adjust deposit rates. According to the external benchmarking system effective October 1, 2019 for specific types of loans, the transfer of bank deposit rates will no longer depend on adjustments to deposit rates. Conversely, changes in interest rates on loans will cause changes in interest rates on deposits.

In terms of classification, 74 banks lowered their one-year currency-based loan interest rate (MCLR) marginal cost, while five banks increased their one-year MCLR. Eighteen public sector banks and seventeen private sector banks reduced their MCLRs, while three private sector banks increased their one-year MCLRs. According to the announcement, the median WALR charged by private sector banks is higher than that of public sector banks due to the higher one-year MCLR of private sector banks and the higher spread of MCLR by private sector banks. Higher MCLR reflects higher funding costs, while higher spreads reflect different loan and the quality of loan portfolios. Overall, despite recent improvements, transfers to bank lending rates, particularly outstanding rupee loans, remain inadequate.

In India, the banking system is a component of the financial system, and effective transfers to bank deposits and loan interest rates are key to achieving the ultimate goal of monetary policy.

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