Despite the Reserve Bank of India’s significant repo rate cuts and liquidity injections totaling Rs 6.6 lakh crore, market yields are not decreasing due to uneven transmission across segments, as per an SBI Research report. This injection, the largest in monetary history, includes CRR injections and buy/sell swaps, totaling around Rs 5.5 lakh crore.
Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India, noted a positive impact on bank lending rates compared to corporate bond yields, leading to corporates favoring bank loans over market borrowing. This shift is more pronounced among higher-rated corporates.
With 65% of loans linked to EBLR, there has been a swift transmission to lower bank lending rates, with the weighted average lending rate on fresh rupee loans dropping by 62 bps to 8.71% in November 2025. However, money market rates have been increasing since August 2025, despite further easing of monetary policy.
The asymmetry is evident in state development loans, with a higher weighted average borrowing yield during April-December 2025 compared to the same period in 2024. The RBI’s decision to prepay the full repo amount borrowed for 90 days, a unique move, may introduce volatility but showcases innovative liquidity management strategies.
The report suggests that the RBI conducts OMO in liquid papers to impact yields significantly. By focusing on liquid papers like the 10-year benchmark, market sentiments across various segments could be revived, ensuring effective yield curve signaling.
