RBI rate cuts failed to equally benefit borrowers, savers: analysis

The Reserve Bank of India's latest rate cycle has exposed a persistent gap between policy adjustments and their real-world impact on consumers and businesses. While the central bank's decisions on the repo rate are designed to influence borrowing and saving rates across the economy, the transmission mechanism has proven inconsistent, leaving many borrowers and depositors experiencing limited relief or gains.

Data from the rate cycle shows that when the RBI reduced the repo rate, commercial banks did not uniformly pass on equivalent cuts to their lending rates. Home loan and personal loan rates saw more modest reductions compared to the policy rate changes, while some segments of borrowers saw even smaller adjustments. The variation suggests that banks maintained wider margins during the rate-cutting phase, prioritising profitability over full transmission.

The picture was similarly mixed for depositors. Savings account rates and fixed deposit returns did not increase proportionally as the RBI raised rates, with many banks offering returns that lagged behind policy rate increases. This compression in deposit rates meant savers saw their returns diminish relative to the extent of RBI rate hikes, particularly in lower-tenure and savings products.

Analysts point to factors including banks' efforts to manage net interest margins, competitive pressures in specific segments, and varying risk perceptions as explanations for the unequal transmission. The disparity underscores how policy decisions at the central bank level do not automatically translate uniformly across the banking system, with structural and competitive dynamics playing a crucial role in determining the actual benefit to end users.