RBI's Rate Cuts Ripple Through Banking Systems Amid Shifting Loan Margins
A report by CareEdge Ratings reveals that the Reserve Bank of India's policy rate cuts are affecting bank spreads and loan margins. Private banks lead the rate transmission, while public banks lag. Despite reduced deposit rates, subdued retail credit demand and margin pressures keep banks cautious.
- Country:
- India
A recent report by CareEdge Ratings highlights the effects of the Reserve Bank of India's (RBI) policy rate cuts on the banking sector. The report indicates that while the transmission of these cuts is evident in banks' existing loan books, new loans are being issued at relatively higher margins.
In June 2025, scheduled commercial banks (SCBs) witnessed a decrease in spreads due to ongoing rate transmission. Private sector banks reportedly experienced a faster transmission rate than public sector banks, owing largely to a greater proportion of EBLR-linked loans.
The report also notes a decline in lending rates on outstanding rupee loans and fresh loans, supported by RBI's liquidity measures. Despite this, cautious lending persists due to subdued credit demand and pressures on margins.
(With inputs from agencies.)
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