RBI’s latest measures impact bank interest rates in India
The Reserve Bank of India (RBI) recently announced a set of measures aimed at controlling inflation and managing the economy. These measures are likely to have a significant impact on bank interest rates in India.
Firstly, the RBI has decided to keep the benchmark interest rates unchanged. This means that the repo rate, which is the rate at which banks borrow money from the RBI, will remain at 4%. Similarly, the reverse repo rate, which is the rate at which banks earn interest on their deposits with the RBI, will remain at 3.35%. This decision is likely to stabilize the interest rates offered by banks to their customers, as there will be no major change in the cost of funds for banks.
Secondly, the RBI has introduced a new policy related to excess reserves held by banks. Banks are required to maintain a certain amount of deposits with the RBI, known as the Cash Reserve Ratio (CRR). Any amount deposited by banks over and above the CRR is known as the Statutory Liquidity Ratio (SLR). From now on, banks will earn interest on their excess SLR deposits with the RBI. This move is expected to incentivize banks to increase their SLR holdings, which could lead to a slight decrease in interest rates offered to customers.
Thirdly, the RBI has announced a new scheme called the On-Tap Targeted Long-Term Repo Operations (TLTRO) scheme. Under this scheme, banks can borrow money from the RBI at repo rates for up to three years, provided they lend the money to specific sectors of the economy such as tourism, hospitality, and small businesses. This is likely to boost lending by banks to these sectors, which could lead to a decrease in interest rates for loans taken by these sectors.
Fourthly, the RBI has announced additional measures to increase liquidity in the banking system. The RBI has increased the limit for Ways and Means Advances (WMA) to the government from Rs 1.2 lakh crore to Rs 2.05 lakh crore. This move is expected to provide additional liquidity to banks, which could lead to a decrease in interest rates for customers.
In conclusion, the RBI’s latest measures are likely to have a mixed impact on bank interest rates in India. While the decision to keep the benchmark rates unchanged and the new SLR policy could lead to a slight decrease in interest rates, the TLTRO scheme and the increased liquidity in the banking system could lead to a stabilization of interest rates. It remains to be seen how banks will respond to these measures, and how customers will be affected in the long run.
