October 7, 2015

Rate cut no use to banks

Banks are parking money with the RBI instead.
The rate cut effectively only reduces the interest they get (since the rate cut has taken RBI’s interest rates lower).
Therefore, the rate cut is negative for banks!

Why Aren’t Banks Lending?

Banks would be happy to lend if they found the right opportunities. They could have lowered their interest rates earlier too (after all, they weren’t borrowing from the RBI at all, so RBI’s rates didn’t matter). They just chose not to, and chose to get a very low interest rate from the RBI instead (about 7.24%).
The fact that they chose to park money with the RBI and not elsewhere tells you how lousy the credit situation must be – no one wants to borrow from them at their rates, they refuse to lower rates, and keep the lower income instead.

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