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Fresh WALR movement volatile; fresh WADTDR rises after a dip in past 2 months

The monthly data on lending and deposit rates of scheduled commercial banks (SCBs) (excl. regional rural banks and small finance banks) for Jun’23 suggests: 1) SCBs’ WALR increased for the 14th consecutive month while WALR on fresh loans remains volatile, 2) O/s WADTDR continues its upward movement, 3) Fresh WADTDR also rises MoM after a drop in the past 2 consecutive months, 4) SCBs’ spread on outstanding WALR vs outstanding WADTDR is now down for eighth consecutive months. Within this, PSB spreads fell 12bps MoM to 1.78%, while private banks spreads were up 22bps MoM to 3.68%, 5) Despite stable MCLR MoM for PSB as well as private banks, SCBs’ MCLR dipped for the 1st time in 17 months, due to sharp 25bps drop for foreign banks.

O/s WALR continues uptrend; WALR on fresh loan volatile

Outstanding WALR for Jun’23 continued to rise on MoM basis (up 4bps), which is 14th consecutive MoM rise. Outstanding WALR was up 1bps MoM for PSB and 7bps MoM for private banks. However, there is divergent trend for fresh WALR wherein it was down 7bps MoM for PSB but increased 12bps MoM for private banks. WALR on fresh loans movement has been volatile since past 3 months. It declined 24bps MoM from its 40-month high of 9.32% to 9.08% in Apr’23. Then for the month of May’23, it increased 19bps MoM to 9.27% and now for Jun’23, it has again declined 7bps MoM to 9.20%. Considering unchanged yields for EBLR-linked loans, we would expect calibrated rise in incremental WALR.

Fresh WADTDR rises after a drop in past 2 consecutive months

Outstanding WADTDR for SCBs continued to rise and inched up 10bps for Jun’23 marking the 14th consecutive month of rise, wherein it rose 144bps during this period. WADTDR on fresh term deposits also rose 2bps MoM after a cumulative decline of 16bps in the past 2 months. We believe that the withdrawal of INR 2,000 notes could have eased the pressure on deposit rates in the past 2 months ending May’23. Most of the banks have guided for incremental deposits rates peaking in a quarter or two.

Spreads on outstanding basis sustain downward trajectory

Spreads (difference between outstanding WALR and outstanding WADTDR) declined for the eighth consecutive month and stood at 3.35% (3.41% MoM). Under this, PSB as well as private banks’ spreads compressed 9bps MoM and 3bps MoM, respectively. Also, spreads (difference between fresh WALR and fresh WADTDR) fell 9bps MoM to 2.86%, after 23bps MoM rise in May’23. Interestingly, within this, PSB spreads fell 12bps MoM to 1.78%, while private banks’ spreads were up 22bps MoM to 3.68%.

MCLR stable for PSB as well as private banks but drops for SCBs

The median 1-year MCLR rate for both PSB and private banks on MoM basis has been mostly on a rising trajectory since May’22 (since RBI started hiking repo rate). However, for Jul’23, it was down 2bps MoM to 8.63% for SCBs, which was the first MoM decline in the past 17 months. However, this was on the back of 25bps MoM decline in MCLR of foreign banks while PSB as well as private banks’ MCLR was stable MoM at 8.65% and 9.50%, respectively.

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