Mumbai: Bank lending rates in India continued to ease in July as the Reserve Bank of India’s (RBI) repo rate cuts started reflecting in lower borrowing and deposit costs.
This helped improve financial conditions during the month, according to a report released on Wednesday.
Key Lending and Deposit Rates Ease, Improving Financial Conditions
Key lending rates like the one-year Marginal Cost of Funds based Lending Rate (MCLR) fell by 15 basis points (bps) to 8.75%, while auto loan rates dropped by 7 bps to 9.19%.
Deposit rates also softened by 3 bps to 6.37%, making it cheaper for banks to raise funds, the Crisil Research report said.
Weighted Average Lending Rate Hits Lowest Since October 2022
The weighted average lending rate (WALR) on fresh rupee loans sharply decreased by 58 bps month-on-month to 8.62% in June — the lowest since October 2022.
Systemic Liquidity Surplus Grows, Supports Lower Money Market Rates
Systemic liquidity surplus grew in July due to higher government spending and less currency circulating, which helped push money market rates lower.
RBI’s 100 bps Rate Cuts Boost Credit Growth Across Sectors
Between February and June, the RBI’s Monetary Policy Committee (MPC) cut the policy rate by 100 bps.
As lending rates eased, bank credit growth improved, though it remained lower than the January-March quarter.
Data till June shows credit growth picking up in personal loans, services, and industry sectors over the past two months.
Market Pressure From US Tariffs Weighs on Equities in July
However, markets faced pressure due to concerns over US tariffs ahead of the August 1 deadline, with equity markets closing July lower than June. Foreign portfolio investors (FPIs) were net sellers of equities.
Government Spending and Reduced Currency Circulation Drive Liquidity Surge
For the fourth consecutive month, systemic liquidity stayed in surplus and increased slightly in July compared to June.
The RBI absorbed Rs 3 lakh crore in July, up from Rs 2.7 lakh crore in June, supported by more government spending and lower currency circulation.
Stable Crude Oil Prices Add Positivity to Economic Outlook
Another positive for the economy was stable crude oil prices, which hovered around $71 per barrel, helped by increased oil production from OPEC and allies, the report added.
