New Delhi
Indian banks need to improve how they measure the impact of interest rate changes, especially the repo rate, which is the strongest indicator of key metrics like loans, deposits, and Net Interest Income (NII), says a Boston Consulting Group (BCG) report. The study notes that although repo rate changes affect all Scheduled Commercial Banks (SCBs), their full impact takes 12 to 24 months to show due to delayed and uneven transmission. A 50 basis point hike in the repo rate boosts NII by 1.11% across SCBs, with public sector banks (PSBs) seeing a sharper 1.45% rise. Loan growth in PSBs also responds more strongly than private banks. However, lower interest rates alone don’t ensure more lending—borrower confidence and banks’ risk appetite matter more. BCG says that due to changing global and local conditions, Indian banks must move beyond traditional models and include interest rate sensitivity in their planning for better risk management.