Whose Interest Rates Were Moved?

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May 17, 2021

With the Covid19 pandemic impacting the economy, the RBI doubled down on easing monetary policy to support growth. It cut the repo rate by 115bps and the reverse repo rate by 155bps in CY2020.

In response, Banks reduced the average rate they charge on all outstanding loans by 90bps in CY2020. But it turns out the biggest beneficiary of this fall in interest rates has been the Financial sector itself. Interest rate on loans given by Banks to the Financial sector entities (lie NBFCs) fell 140bps in 2020 and at 7.6% it is the lowest of all the major sectors.

Interest rate on Housing loans and those to Wholesale and Retail trade fell by 110bps. These are the only 3 sectors where interest rates have fallen by more than 100bps. In sectors such as Agriculture or Transport Operators interest rates have fallen by just 50bps.

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