Home, auto and personal loan rates may not fall sharply as expected after the RBI’s directive as bad debt-laden banks strive to protect profitability with higher spreads over benchmark rates.Banking experts and analysts cautioned about pressure on banks’ net interest margin after the RBI ordered lenders to ditch the current formula for setting rates and adopt a new one based on market-linked benchmarks.
Some bankers and analysts warned that rates may either rise in the short term or stay where they are, as banks’ cost of funds is linked to deposit rates that are sticky and not benchmarked.
Banks may begin to charge a higher risk premium to cover the cost of deposits, which do not move in tandem with any of the RBI-suggested external benchmark interest rates — such as repo rate or treasury bills.