The Reserve Bank of India (RBI), in its October 2026 Bulletin, reported that banks transmitted 93 basis points (bps) of the cumulative 125 bps reduction in the policy repo rate to borrowers between February 2025 and March 2026. The findings indicate that lending rates on newly sanctioned loans declined during the monetary easing period.
According to the RBI study, “Transmission to Lending Rates of SCBs: Price versus Composition Effects in WALR,” the weighted average lending rate (WALR) on fresh loans fell by 93 bps. This decline comprised an 80 bps interest rate effect and a 13 bps composition effect, reflecting the combined impact of changes in loan pricing and the composition of bank credit.
The study highlighted that changes in aggregate lending rates are influenced not only by banks revising interest rates but also by shifts in the distribution of credit across banks and sectors. Both factors are relevant when evaluating the effectiveness of monetary policy transmission.
The Bulletin's State of the Economy assessment also noted that India's economic activity remained resilient, supported by indicators across the industrial and services sectors. However, geopolitical tensions in West Asia and supply chain disruptions contributed to global inflationary pressures, prompting major central banks to increase policy rates.
Domestically, India's headline Consumer Price Index (CPI) inflation rose in September, reflecting increases across food, fuel and core inflation components. Meanwhile, double-digit growth in merchandise exports during the first half of FY 2026–27 helped reduce the trade deficit. Foreign direct investment (FDI), external commercial borrowings (ECB) and remittance inflows also strengthened in August.
The Bulletin further reported that credit growth in the non-banking financial company (NBFC) sector remained in double digits at the end of December 2025, accompanied by an improvement in asset quality and declining non-performing asset ratios.
The RBI clarified that the views expressed in individual Bulletin articles are those of their respective authors and should not necessarily be interpreted as the central bank's official views. CASansaar
Source: CA Sansaar