Besides, the central bank’s decision to increase the availability of inter-bank liquidity is aimed at faster transmission of monetary policy to the financial and credit markets. The monetary policy maker already expressed hope that policy transmission would be better than previous years.
The share of floating rate loans in total gross advances of fourteen select mainstream banks, which account for around 80 per cent of the assets of scheduled commercial banks, has risen to 75.7% in March 2025 from 72% in March 2023, the central bank said.
The share of floating rate loans in the retail loan category rose to 65.1% from 60.2% during the same period. In the retail segment, 90% of the floating rate loans are linked to external benchmark linked rates in which transmission is almost automatic.
The central bank lowered the policy rate by a cumulative 100 basis points during the last three monetary policy meetings while market participants and economists are expecting more rate cuts this year.
Borrowers taking loans from public sector banks are likely to benefit more since 80.9% of the overall advances by these banks are floating loan rate as compared to private banks’ 67.5%. Within the public sector domain, 93% of the agriculture sector loans are on floating rate basis while the ratio for private banks is just about 54.5%.The RBI injected durable liquidity amounting to about Rs 9.5 lakh crore through a series of liquidity measures including open market operation purchases, buy-sell swaps and term variable rate repos since January 2025, which led to system liquidity transitioning from deficit to surplus at end-March 2025.Additionally, the decision to lower cash reserve ratio (CRR) by 100 bps in a phased manner will release Rs 2.5 lakh crore of primary liquidity starting September till December 2025.
“Cumulatively, these measures have not only turned durable liquidity into surplus but will also contribute to faster transmission of monetary policy to the financial and credit markets,” the monetary policy authority said in the report.
