RBI Flags Stronger WALR Transmission by Private Banks Than PSBs

The Transmission of Policy Rate Cuts to lending rates has been stronger in private sector banks than in public sector banks, according to the Reserve Bank of India’s latest bulletin.  

The data is indicative of how different bank groups have adjusted lending rates during the ongoing easing cycle. 

Impact Of Repo Rate Reduction 

The RBI reduced the policy repo rate by a total of 125 basis points between February 2025 and February 2026.  

Following this, scheduled commercial banks lowered both external benchmark-linked lending rates and marginal cost of funds-based lending rates. This resulted in a decline in weighted average lending rates (WALRs) on loans. 

Lending Rate Trends Across Banks 

Private sector banks recorded a sharper fall in lending rates on fresh rupee loans, declining by 104 basis points. Public sector banks reported a lower reduction of 75 basis points.  

The WALR on fresh loans for private banks fell by 94 basis points, while the WALR on outstanding loans for public sector banks declined by 77 basis points during the same period. 

Deposit Rates Show Similar Movement 

Changes in deposit rates were largely similar across bank groups. Weighted average domestic term deposit rates on fresh deposits softened, mainly due to lower rates on bulk deposits.  

This shows the impact of surplus liquidity and the lower interest rate environment. Foreign banks saw the steepest fall in both deposit and lending rates. 

Role of External Benchmarks 

The RBI noted that a higher share of loans linked to external benchmarks has supported the transmission of policy rate changes.  

Lending rates on both fresh and outstanding loans declined across sectors, indicating a broader pass-through of rate cuts within the banking system. 

Market Conditions During the Period 

Equity markets in India saw increased volatility in March due to geopolitical uncertainties. However, conditions stabilised in April, supported by easing global tensions and a moderation in crude oil prices. 

Read More: Maharashtra Approves State Compressed Biogas Policy 2026 To Boost Clean Energy! 

Conclusion 

The RBI’s data shows that while lending rates have declined across banks, the extent of transmission has varied, with private sector banks showing a relatively faster adjustment than public sector banks. 

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