Most lenders have lowered interest rates on deposits by anywhere between 60-70 basis points over the past year though rates on loans have fallen by a smaller quantum.
By Hariprasad Radhakrishnan
Growth in bank loans to companies and individuals plunged to 6.3% year-on-year in the fortnight to February 14, the lowest pace seen since May 2017. In an indication of how sluggish India’s credit markets are, non-food credit between April 2019 and mid-February grew at just 2.5%. That is way below the 9.3% reported in the comparable period of 2018-19. Indeed, bank loans to companies and individuals have fallen to Rs 99.68 lakh crore, while the overall outstanding loans stand at Rs 100.42 lakh crore.
Finance minister Nirmala Sitharaman on Wednesday asked public sector banks to not rely blindly on ratings agencies but to connect with customers at the branch level and get back to the business of lending.
Sitharaman asked themto ensure that small and medium businesses are not starved of liquidity.
Economists have pointed out that the surplus in the banking system is a whopping Rs 2.25 lakh crore adding that banks have been parking large sums in the Reserve Bank of India’s (RBI’s) reverse repo window. Meanwhile ,deposits continued to grow at a relatively faster pace — 9.21% y-o-y — to Rs 132.35 lakh crore. Most lenders have lowered interest rates on deposits by anywhere between 60-70 basis points over the past year though rates on loans have fallen by a smaller quantum.
The RBI has already lent banks Rs 50,000 crore at relatively soft rates — in what is called a long term repo operation — to encourage them lend more. Moreover, the central bank has also given them a CRR break for retail loans in specific segments and extended forbearance for loan losses of small units.