Foreign Banks Excel in RBI Rate Cut Transmission: RBI Bulletin

Foreign banks have demonstrated the most robust transmission of the Reserve Bank of India’s policy rate cuts, according to a recent RBI bulletin. These institutions reduced both lending and deposit rates more sharply compared to their public and private sector counterparts during the easing cycle.

The period from February 2025 to May 2026 saw significant adjustments in rates by foreign banks, indicating their efficiency in passing on the central bank’s monetary policy changes to the broader economy.

Key Rate Adjustments by Foreign Banks

Foreign banks implemented substantial reductions across various loan and deposit categories:

Weighted average lending rates on fresh rupee loans were cut by 1.24 percentage points.

Weighted average lending rates on outstanding loans saw a reduction of 1.20 percentage points.

For fresh domestic term deposits, weighted average rates decreased by 0.91 percentage points.

Outstanding domestic term deposit rates were lowered by 0.90 percentage points.

Understanding Policy Rate Pass-Through

This strong pass-through signifies how effectively foreign banks translate the Reserve Bank of India’s policy easing into their own lending and deposit rates.

The bulletin specifically noted that the transmission to fresh lending rates proved particularly strong in sectors such as infrastructure and other areas mandated by the External Benchmark-linked Lending Rate (EBLR) framework.

The central bank has cumulatively reduced the repo rate by 1.25 percentage points since last year, although it maintained the rate unchanged in several subsequent monetary policy reviews.

The distinct agility of foreign banks in adjusting their rates plays a critical role in ensuring that the Reserve Bank of India’s monetary policy objectives are effectively achieved across the financial system.