While most banks have aggressively been cutting lending rates since demonetisation in November, the Reserve Bank of India (RBI) governor Urjit Patel believes that lenders have space for more cuts in future. There is still room for lending rates to come down as RBI’s policy rates have come down by 175 basis points, and in comparison, the weighted average lending rate (WALR) has come down at the most by about 85-90 bps. Transmission has improved a touch because of demonetisation-driven liquidity, introduction of the MCLR, and successive reduction in small savings interest rates. In order to achieve monetary transmission by ensuring that lending rates are sensitive to policy rates, the Reserve Bank of India has made it mandatory for banks to adopt the MCLR as the benchmark for lending, instead of the base rate, from the beginning of FY17.

(Financial Express)