Weighted Average Lending Rate on Fresh Rupee Loans

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Source: CMIE Economic Outlook, 1 Finance Research

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What does Weighted Average Lending Rate on Fresh Rupee Loans data represent?

The Weighted Average Lending Rate on Fresh Rupee Loans data represents the average interest rate at which new loans (rupee-denominated) are being issued by all the Scheduled Commercial Banks (SCBs) in India.
This rate is weighted based on the volume of lending. All SCBs include Public Sector Banks (PSBs), Private Sector Banks and Foreign Banks.

This data is a crucial indicator of the borrowing cost for businesses and consumers in the economy and reflects the lending behaviour of financial institutions.
The lending rate is a key determinant of the financial sector's profitability. It reflects the balance between maintaining bank profitability and attracting borrowers. This data provides insights into the current cost of borrowing in the economy, which is critical for investment and consumption decisions.
Lending rates are closely linked to monetary policy actions and inflation trends. Central banks adjust policy rates to influence lending rates, aiming to manage inflation and stabilise the economy.
The weighted average lending rate indicates the availability of liquidity in the financial system and also can signal the overall economic activity.
The trends in the weighted average lending rate reflect the evolving cost of credit in the economy and its potential impact on different sectors.
The lending rate trends and central bank policy rates (such as the repo rate) indicates the transmission of monetary policy into the banking sector.

Lower rates typically encourage borrowing and investment, potentially stimulating economic growth, while higher rates may indicate a tightening of credit and could slow down economic activity.
In a high liquidity scenario, lending rates might be lower, and vice versa.
High lending rates curb demand for credit growth and helps to reduce inflation, while lower borrowing costs does the opposite.