SBI has left MCLRs unchanged from their levels a month ago. Private sector lender Kotak Mahindra Bank effected a 25-bps cut on its one-year MCLR. Rates on tenures between one month and three years were also reduced by between 10 bps and 30 bps.

The increased transmission is partly the fallout of the deluge of deposits with banks following the demonetisation.

Till Thursday, approximately R11 lakh crore was understood to have flowed into banks since November 10.

On Wednesday, Punjab National Bank had cut its MCLR by 10 bps across tenures. Effective December 1, the one-year MCLR at the bank now stands at 9.15%.

Apart from the flush of deposits, falling rates in the corporate bond market are another factor that forced banks’ hand. The FIMMDA benchmark for AAA-rated corporate bonds has dropped by 38 bps since November 8, the day demonetisation was announced, to close at 6.82% on Thursday.

In a note dated November 21, investment bank Jefferies wrote that the demonetisation-driven inflows into deposits would hasten the process of transmission of the RBI rate cuts, which was earlier expected to take five to six months.

“Competition will further increase, resulting in spread-squeeze as banks try to channelise the excess liquidity, e.g. in corporate refinancing, home loans etc,” Jefferies said.

Brokerage Kotak Institutional Equities expects the rise in system liquidity to lead to an increased demand for SLR bonds, especially amid muted demand for credit.