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Lending-deposit spread hits 10-year low: WALR explained

8 May 20251 min read
BANKING & FINANCELending-depositspread hits10-year low: WALRexplained8 May 2025safalsetu.com

Why in the news

The gap between banks’ average lending rate and average term deposit rate narrowed to a decade low in March 2025.

Key facts

  • Overall spread: 2.71%, down 5 bps month-on-month.
  • Spread on fresh loans: down 22 bps to 2.7%.

About WALR

  • The average rate a bank charges, weighted by loan size, so big loans count more.
  • Computed as total of (amount x rate) divided by total loans; it changes as loans are added, repaid or modified.
  • Covers all loans, retail and corporate.

Uses

  • Comparing banks and gauging monetary policy transmission.
  • Regulators track policy rate impact, credit conditions and borrowing costs.

Implications of lower WALR

  • Cheaper credit and tougher competition among banks.
  • Lower borrowing costs, but pressure on bank profitability.

Exam angle

  • Companion metric: WADTDR, the weighted average domestic term deposit rate.
  • Weighting basis: size of loans or deposits.

Test yourself

1. What was the spread between WALR and the weighted average domestic term deposit rate in March 2025?

The overall spread fell to 2.71%, a 10-year low.

2. On what basis is the weighted average lending rate (WALR) weighted?

WALR is weighted by the size of each loan, so larger loans have more influence.

3. The spread on fresh loans fell by how much in March 2025, as per the WALR data?

The fresh loan spread dropped 22 bps to 2.7%.

This topic is part of Daily Current Affairs 8 May 2025 (20 topics).

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