Defaults in loans of Rs 1 crore and above added up to Rs 39,869 crore at the end of March 31, 1999, up by Rs 11,322 crore (or 39 per cent) over end-March 1998. That year (1998-99) non-food bank credit rose by Rs 39,859 crore (to Rs 349,187 crore). As a proportion of incremental non-food credit, the additional NPA was 28.4 per cent. No wonder that non-food credit expansion to corporates has been inhibited. It also follows that credit-worthy corporates (that is safe borrowers) get loans at or close to prime rates.

The brunt of high lending interest-following the burgeoning provisioning to cover the rise in gross NPAs as a proportion of outstanding non-food credit to 11.4 per cent at end-March 1999 from 9.2 per cent at end-March 1998- falls on the non-prime borrowers. The farther a corporate is from the prime status, the higher the interest rate it has to bear.

Besides the firms contributing to overt NPAs, there are others considered risky by banks. Some of this risk (including uncovered default risk) spills over to the depositor. So, should deposit interest rates be cut nevertheless? Low inflation makes real interest on deposits high; but in paring deposit interest rates, surely allowance must be made for the lengthening shadow of risk falling on the depositor? Besides, how realistic is the ceiling lending interest (and possible risk-related interest differentials within the ceiling) prescribed (by RBI) as so many percentage points above the prime? Interest rates must reflect the state of inflation as also risk.