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Banks Widen Lending-Deposit Gap in August
1 Oct
Summary
- Average deposit rate fell to 5.67% while lending rate rose to 8.61%.
- Personal loan rates saw a significant increase in August.
- The divergence between deposit and lending rates has widened since March.
Banks reduced the interest paid on fresh term deposits during August, while simultaneously increasing the average rate charged on new loans. This resulted in a wider spread between lending and deposit rates, marking a 27 basis point increase within the month.
The weighted average rate for new rupee term deposits fell to 5.67% in August, down from 5.85% in July. Conversely, the weighted average lending rate on new rupee loans climbed to 8.61% from 8.52% in the same period.
This trend saw both public and private sector banks offering lower rates on new deposits. However, the rise in lending rates was primarily driven by private banks, where the average rate increased significantly. The divergence between deposit and lending rates has been steadily growing since March.
The increase in lending rates was not uniform across all loan types. While rates for other personal loans and education loans saw notable rises, vehicle and housing loan rates experienced decreases. Rates on existing business loans saw minimal changes.
