Economic Survey 2022-23: How Rate Changed Impacted Banks’ WALR On Outstanding, Fresh Loans

The government came out with its latest economic survey on January 31, 2023. Economic Survey 2022-23 also gave an outlook of the monetary policy transmission as a result of the hike in repo rate by the Reserve Bank of India since April 2022.

The RBI hiked repo rate by 225 basis points (bps) since April 2022. It now stands at 6.25 per cent following the recent hike in 35 bps announced by RBI at its last monetary policy committee (MPC) meeting in December 2022.

Repo rate is the rate at which the RBI lends money to all commercial banks. An increase in repo rate translates into a hike in the lending as well as deposit rates. One bps equals 0.01 percentage point.

The government’s economic survey said that the banks increased their lending and deposit rates in sync with the policy repo rate changes announced by the RBI.

“The lending and deposit rates of banks increased during FY23 in consonance with the policy repo rate changes. During FY23 (up to December 2022), external benchmark-based lending rate and 1-year median marginal cost of funds-based lending rate (MCLR ) increased by 225 bps and 115 bps, respectively. Overall, the weighted average lending rate (WALR) on fresh and outstanding rupee loans rose by 135 bps and 71 bps, respectively, in FY23 (up to November 2022). On the deposit side, the weighted average domestic term deposit rate (WADTDR) on outstanding deposits increased by 59 bps in FY23 (up to November 2022),” it said.

It further said that an analysis of transmission across bank groups during FY23 (up to November 2022) indicated that the increase in the WALRs on fresh loans was higher in the case of public sector banks, while that of the WADTDR on outstanding deposits and WALR on outstanding loans was higher for private banks.

For public sector banks, the WALR on outstanding loans for the period February 2019 to March 2022 was -153. The WALR on fresh rupee loans was -252, and the WADTDR on outstanding deposits was -169.

In contrast, the figures for the same parameters for April 2022 to November 2022 were 59, 149, and 51, respectively.

One side-effect of the hike in repo rate is the consequent hike in home loan rates on fresh and existing home loans, which consequently leads to a either a higher equated monthly instalment (EMI) or a longer tenure.

In this scenario of increasing repo rate, should you change your lender all the time for a lower interest rate on your home loan? Read here to know: https://outlookmoney.com/magazine/story/asymmetrical-rate-transmission-little-room-for-manoeuvre-1251