How much of the interest rate cut has been passed to home loan takers

MUMBAI: With banks turning stingy in passing on RBI’s rate cuts to consumers, rate of home loans has fallen by only 0.26 percentage point since 2015, but corporates have managed to bring down their borrowing cost by 1.44 percentage point by tapping bond markets, as per the central bank.

Between January 15, 2015 and April 5, 2016, Reserve Bank of India reduced the repo rate by 150 basis points, but in response to this, the banks have lowered their benchmark lending rates by only 60 basis points, according to RBI’s annual report for 2015-16.

Between December 2014 and June 2016, home loans dropped by just 0.26 per cent to 10.76 per cent in June 2016 from 10.50 per cent in December 2014. During the same period, corporates’ borrowing became cheaper by 144 basis points. Corporates’ borrowing from shortest maturity commercial papers dipped to 6.54 per cent in June 2016 from 7.98 per cent during December 2014.

Corporates are borrowing at a cheaper rate through issuance of commercial papers, RBI said, while adding that there was a surge in public issuances of corporate bonds in the fiscal year 2015-16. In the second half of the year, following the September reduction in the policy repo rate and again towards the close of the year, yields of top-rated AAA corporate bonds eased, following g-secs (government securities) yields.

The corporate bond yields also declined following easing of g-secs yields during 2016-17 so far (up to August 2016). “Taking advantage of low yields vis-a-vis bank lending rates, corporates raised more resources from the bond market in recent period,” RBI stated.

According to RBI, banks are not passing on the benefits of rate cuts to customers to protect their earnings. So far in the financial year 2016-17, there has hardly been any transmission of a reduction in the policy rate to the actual lending rates charged to customers, stated the report.

RBI said banks might have been loading a higher credit risk premia on their new customers in order to attain their desired return on net worth in a rising NPA environment. Lenders are also charging a higher strategic risk premia on their riskier loans as part of their business strategy to reorient their lending operations towards less risky activities, it said.

Credits ET Realty

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