Prime rate drifts down towards 12%, lowest since April last year 

The prime rate or the rate at which banks loan to their prime clients mostly for short tenors is drifting down towards 12 percent, a level which was last seen about 20 months ago.
The benchmark weighted average prime lending rate settled down at 12.19 percent by the end of last week, in a striking distance from the 12 percent levels, logging a 27 basis points decline from a week earlier.

This worked out to a full 112 basis points decline in the benchmark lending rate from November 10 when the rate fell below 13.50 percent to end at 13.31 percent, roughly a level where the Central Bank wanted to bring it down by the end of October.

The last time the prime rate was below 12.0 percent level or lower than what it is today was back in mid-April when the lending rates were just beginning to respond to the 700 basis points bumper policy hike by the Central Bank. 
The rate was at 28.68 percent last year during its peak time when the economy was going through its worst crisis which unravelled in March that year. 

The decline in interest rates seems to have picked up pace in the last couple of weeks compared to the preceding period. This acceleration could be attributed to the transmission of previous monetary policy action and the comments by Central Banks regarding potential action against banks that are sluggish in passing on the full benefits of policy rate cuts to borrowers.

In August, the Central Bank instructed all licensed banks to reduce their rupee lending rates by 250 basis points by the end of October and a cumulative 350 basis points by the end of December this year. 
This directive was issued in alignment with the reduction in key policy rates. At that time, banks were observed to be slow in passing on the benefits of the easing monetary policy, maintaining lending rates at levels disproportionate to deposit rates.