RBI Monetary Policy Committee Tightens Deposit and Lending Rates in March and April, Says Governor

Credit Market Transmission Moderates, Deposit and Lending Rates Harden

The Reserve Bank of India (RBI) has reported a moderation in the transmission of rate cuts in the credit market during March and April. According to Reserve Bank of India governor Sanjay Malhotra, deposit and lending rates have hardened during the period.

The RBI noted that the transmission in the credit market had moderated during the two months, reflecting some firmness in both deposit and lending rates. Deposit mobilization has continued to lag credit demand, prompting lenders to keep deposit rates elevated to attract funds. This, in turn, has limited the extent to which lower policy rates can be transmitted to borrowers.

The RBI has been attempting to improve liquidity conditions through Variable Rate Repo (VRR) operations and an open market purchase of government bonds. Since the April policy, 11 VRR operations have been conducted. However, the central bank's efforts to boost liquidity have been met with resistance from lenders, who are focused on maintaining their deposit rates.

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As per the latest available data, credit from all sources grew by 15.4 percent in FY26, as compared to 12.1 percent a year ago. This growth in credit has been driven by a surge in borrowing from non-banking financial companies (NBFCs) and housing finance companies (HFCs).

The yield on shorter-term instruments such as certificates of deposits (CoDs) and commercial papers (CPs) had moderated in April before coming under pressure again in May. The outbreak of the war in West Asia has led to a surge in yields on money market instruments, indicating that a rate hike could be on the horizon.