Lok Sabha Question No. 2637 (UNSTARRED), answered on 2017-03-17
Subject: Interest Rates after Demonetisation
Ministry: FINANCE
Asked by: VIJAYSINH MOHITE PATIL, JAYAKUMAR JAYAVARDHAN, RAJEEV SHANKARRAO SATAV, DHANANJAY BHIMRAO MAHADIK, SUPRIYA SADANAND SULE, KANWAR SINGH TANWAR, BHARATENDRA SINGH, HEENA VIJAYKUMAR GAVIT

## Government of India Ministry of Finance Department of Financial services

## LOK SABHA

## UN-STARRED QUESTION NO. 2637 TO BE ANSWERED ON 17 th  MARCH, 2017 / PHALGUNA 26, 1938 (SAKA)

'Interest Rates after Demonetisation'

## 2637:    SHRI MOHITE PATIL VIJAYSINH SHANKARRAO:

DR. J. JAYAVARDHAN: SHRI SATAV RAJEEV: SHRI DHANANJAY MAHADIK: SHRIMATI SUPRIYA SULE: SHRI KANWAR SINGH TANWAR: KUNWAR BHARATENDRA:

DR. HEENA VIJAYKUMAR GAVIT:

Will the Minister of FINANCE be pleased to state:

- (a) whether the banks have lowered the interest rates on Fixed Deposits, saving schemes and home loans after demonetisation and if so, the details thereof, bank-wise along with the reasons therefor;
- (b) whether old customers also get the benefit of lower interest rate on home loans and  if so, the details thereof;
- (c) whether  the  Government  is  aware  that  banks  are  charging  conversion  fees  /  charges  from  the  old customers for lowering the rate of interest;
- (d) if so, the details thereof and the reasons therefor; and
- (e) whether the Government issue directives to waive the conversion fees / charges and if so, the details thereof and if not, the reasons therefor?

## Answer

The Minister of State in the Ministry of Finance

## (SHRI SANTOSH KUMAR GANGWAR)

(a) to (e): Reserve Bank of India (RBI) has deregulated the interest rate on advances, term deposits and domestic savings depositis and these are determined by banks with the approval of their respective Boards, subject to regulatory guidelines of RBI.

In terms of extant guidelines, which came into effect from April 1, 2016, banks have to compute actual interest  rates  on  advances  by  adding  the  components  of  spread  to  the  Marginal  Cost  of  Funds  based Lending Rate (MCLR) which is the internal benchmark for such purpose. Accordingly, the rate of interest charged to the borrower varies from bank to bank and depends on various factors such as cost of funds, operating costs, tenor premium, business strategy premium, credit risk premium etc.

Indian  Banks'  Association  (IBA)  has  informed  that  due  to  heavy  inflow  of  old currency,  banks  were flooded  with  liquidity  immediately  after  demonetisation.  Since,  the  credit  growth  was  muted  during  the financial year 2016-17, banks were reducing the interest rates on deposits. As a result, the cost of deposits was gradually coming down for the banking system. After demonetisation, more deposits encouraged the banks to reduce the lending rate or MCLR significantly.

Further,  i n  terms  of  the  instructions  contained  in  RBI's  Master  Direction  (Interest  Rate  on  Advances), 2016, existing borrowers linked to Benchmark Prime Lending Rate (BPLR) / Base Rate shall have the option to move to the MCLR linked loan to mutually acceptable terms. The terms of the switch-over may include charging of a fee for such switch-over.

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