8/12/2019 3India Lending Rate April2013 WSJ

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April 9, 2013, 9:00 AM

Why Indias Lending Rates Are StickyBy Kunal Kumar Kundu

The Reserve Bank of ndia and !he Minis!ry of "inan#e haven$! seen eye !o eye on

mone!ary poli#y for some !ime% The &overnmen! 'an!s !he #en!ral (ank !o ease

mone!ary poli#y fas!er, 'hile !he RB 'an!s )e' *elhi !o prove i! is fis#ally

responsi(le%

The #en!ral (ank has a#!ually eased +ui!e a (i!, #u!!in& !he repo ra!e !he ra!e a!

'hi#h (anks (orro'- (y 1. (e!'een April 2012 and Mar#h 2013% ! has also #u! !he

#ash reserve ra!io !he per#en!a&e of deposi!s !ha! (anks have !o keep 'i!h !he RB

and on 'hi#h !hey earn no in!eres!- (y 1%/. and !he s!a!u!ory li+uidi!y ra!io money

#ommer#ial (anks mus! keep in #ash, &old or &overnmen! au!horied se#uri!ies- (y

1.%

Bu! !his hasn$! led !o (i& #u!s in lendin& ra!es (y #ommer#ial (anks% Resear#h firm

*a!a says !he (en#hmark lendin& ra!e of !a!e Bank of

ndia/00112%B4 51%2/. and 6*" Bank dropped 7us! 0%3. from April !o Mar#h,

'hile Bank/3218%B4 50%/1.$s fell 0%2/. andAis Bank/3221/%B4 52%/9.$s didn$!

#han&e a! all% ven !hou&h !he repo ra!e and !he RR have dropped, !he #os! of

funds of !he (anks hasn$! fallen enou&h !o 'arran! (i&&er ra!e #u!s%

This #an (e a!!ri(u!ed !o an asse! lia(ili!y misma!#h and risin& levels of ndian (anks$

non;performin& asse!s%

ndia Ra!in&ssays !he refinan#in& risk of (anks has (een &ro'in&, par!i#ularly for

&overnmen! (anks, as lon&;!erm loans have in#reasin&ly (een finan#ed (y shor!;!erm

deposi!s%

The risk is par!ly mi!i&a!ed (y (anks$ solid domes!i# re!ail deposi!or (ase, (u! !he hi&h

pa#e of refinan#in& s+ueees +uar!er;end li+uidi!y, keeps fundin& #os!s eleva!ed and

delays !he !ransmission of any poli#y ra!e #u! !o (orro'ers%

A##ordin& !o !he RB, as of Mar#h 31, 2012, !he num(er of si#k 'hen a##umula!ed

loss e+uals or e#eeds ne! 'or!h- mi#ro;, small; and medium;sied en!erprises s!ood

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