Indeed, even though it is counter-intuitive, interest rates on existing loans (not new loans) have actually gone up by 7 basis points. If banks reduce the interest rates on loans, more businesses are likely to be enthused to borrow new loans for investment. Unless banks reduce their deposit rates, they will not be able to reduce their lending rates. “Therefore, banks generally go slow on reducing the interest rates on advances as deposits take longer to get repriced.”But why are interest rates going up on existing loans? Moreover, depositors are not in the habit of getting a fixed interest rate on their savings while expecting a variable interest rate on their loans.

Source: Indian Express October 20, 2019 19:41 UTC