Loans won't become cheap soon

Mumbai: The benefits that the consumers should get every time the Reserve Bank cuts its lending rate  will now take much longer to reach the consumer.

So home loans or  personal loans won’t get cheaper and time soon, despite the present surge in deposits following demonetisation estimated at Rs 5.94 lakh crore till November 27, that  created a huge liquidity in the system.

This has been nullified by the RBI absorbing '5.24 lakh crore as on November 25, 2016 through CRR. “As they  will not earn anything on the impounded amount banks may take a pause on monetary transmission as they await further directions from the regulator,” Icra said.

Deposits have  grown at 11 per cent Y-o-Y already outpacing the credit growth of 8 per cent in FY2017. Industry credit continued to drag on credit expansion, with only a marginal 0.9 per cent y-o-y growth as on September 2016, while the retail, agriculture and services sector continue to report strong traction said Mr Karthik Srinivasan, senior vice-president and co-head, financial sector ratings, ICRA.

He says rates are unlikely to come down and a large part of banks’ incremental deposits are likely to be invested in government securities, even as the supply may be small.