The RBI has stated that because deposit rates are still rising and banks may need to reconsider the low lending rates provided through special loan schemes, which may have an impact on their profits, interest rate transmission is not complete.

In markets like house loans, banks have been engaged in a rate war, luring clients with exclusive rates. Bank of India lowered house loan rates from 8.45% to 8.3% two weeks prior to the announcement of the RBI's decision to keep interest rates at current levels. Union Bank of India and Bank of Maharashtra, which had previously slashed key rates to 8.35%, were surpassed in this action. SBI, however, decided to maintain the new house loan rate at 8.4%.

Home loan rates fell to a historic low of 6.7% in 2021 as a result of the RBI's 4% repo rate decrease. The cost of house loans has climbed by 170 basis points since then, despite the central bank raising rates by 250 basis points to 6.5%. Thanks to special incentives, rates are significantly lower for new borrowers; nevertheless, prices for existing borrowers have increased proportionately to the rate increases.

"There is still transmission if you look at the loan rates from April to February. In actuality, the interest rate on new loans increased by 13 basis points in January. Thus, some transmission is still evident, and it is anticipated that lending rates would continue to rise as long as deposits are mobilized at ever-higher rates, according to RBI deputy governor Michael Patra."

According to J Swaminathan, the deputy governor, banks are paying an ever-rising cost for deposits. Because of the noticeable 3-3.5% deficit that has existed for more than a year, banks are actively working to mobilize deposits. Furthermore, we are observing that consumers are become more price conscious. There is a noticeable shift in favor of term deposits. As a percentage of overall deposits, CASA is getting smaller

According to bankers, another reason for the decrease in loan rates was the lenders' desire to capture more market share while businesses were still borrowing.