Despite a 50-basis point repo rate cut by the Reserve Bank of India (RBI) in June 2025, banks bucked the trend in July, raising their weighted average lending rate (WALR) on fresh loans. RBI data shows the WALR rose to 8.8% in July from 8.62% in June, with bankers attributing the increase to a surge in high-yielding MSME loans ahead of the festive season.

The weighted average lending rate (WALR) on new loans is the average interest rate charged by banks on fresh loans in a in a given period, adjusted for the share of each loan category.

This contrarian behaviour of banks is unusual, considering that in the past their lending rates have moved in line with the repo rate. For instance, in April 2025, when the RBI cut rates by 25 basis points, the WALR on new loans dipped by six basis points. In the subsequent month of March, the WALR dipped by six basis points.

Earlier, during the rising interest rate cycle when the RBI embarked on a series of hikes in the wake of the Ukraine invasion and global supply disruptions, the WALR rose in the month following every rate hike. Similarly, rates dipped in the post-Covid cycle.

Interestingly, banks managed to bring down their interest costs as reflected by the weighted average domestic term deposit rates on fresh deposits which dipped to 5.6% in July from 5.75% in June 2025. RBI data also shows that year-on-year bank credit growth is now firmly in double digits. As of Aug 8, bank credit grew 10.5% year on year.