InvestorQ : Why are Indian banks so slow in transmitting policy rates to their customers?
Nitin Shah made post

Why are Indian banks so slow in transmitting policy rates to their customers?

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seema Upadhyaya answered.
3 years ago
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While it is true that Indian banks are slow in transmitting the rates the central bank cuts, it is not only an Indian phenomenon. This is being observed across the globe.

The moment a country’s central bank cuts the main policy rates, consumers start hoping the lower rates will get transmitted soon so that they get some respite in their loan repayments. However, more often than not, this transmission happens very late.

According to a study conducted by the International Monetary Fund on the interest rate transmission in the country, the following was deduced:

- Policy changes such as low interest rates are passed through slowly by banks to their customers

- While banks reduce their deposit rates during rate cuts almost immediately, they do not reduce their lending rates as quickly. However, in the case of rate increases, lending rates rise quickly, while deposit rates lag.

- Transmission of deposit rate is larger than that of the lending rate. Furthermore, the deposit rate calibrates quickly to changes in policy rates.

- The RBI governor has been encouraging banks to cut interest rates after policy rate cuts.

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