A 50 basis point cut in the bank rate and a 200 basis point reduction in the cash reserve ratio meant a liquidity injection of Rs 6,000 crore into the system. All done to ensure ample and cheap availability of credit to the corporate sector. The result: in the first fortnight after the credit policy which announced these measures, the credit offtake is all of Rs 14 crore—roughly Rs 1 crore per day. And don’t forget this is the busy season!

The first stage of 1.75 per cent CRR cut announced on October 22 has already taken place releasing about Rs 6,000 crore into the system. But there are no signs of credit pick up yet.

“It’s too early to say that the credit policy has failed. But we are not feeling the impact as yet,” said one banker. Bankers are not willing to cut the lending rates as they feel that even a rate cut will not trigger credit offtake. In fact, the reasons for not responding to the RBI’s measures are two fold: banks cannot afford to bring down their lending rates as their spreads (the margin between cost of funds and the interest earned on deploying the funds) are under tremendous pressure and secondly, there is no guarantee that the lending rate cut will pave the path for a spurt in credit offtake.

“What’s the point in cutting the prime lending rate (PLR)? Will it prop up the credit offtake?” asks Bank of India chairman KV Krishnamurthy. He seems to be the voice of the entire banking sector. State Bank of India chairman Janki Ballabh says the asset-liability committee of the bank will decide on the rate cut after taking into account the impact of the CRR and bank rate cut on the bank’s bottomline. Analysts feel that the State Bank may at best announce a token cut of 25 basis points at his long term prime lending rate ( PLR) and bring it down to 11.25 per cent but leave short and medium term rates (10 per cent and 10.5 per cent, respectively) untouched.

RBI, however, made it clear in the credit policy that the bank rate cut would not necessarily lead to a paring of banks’ lending rates. “It needs to be recognised that in view of certain structural characteristics of our financial system, the scope for further softening in lending rates by banks and other financial intermediaries is limited...,” the policy document said.

“It does not really matter whether banks are cutting their rates or not. Any way, better rated corporates can access loans at sub-PLR rates. Unless the investment climate looks up, the monetary policy can do nothing to push credit. At best, it can improve the sentiment,” said chief financial officer of a triple-A rated corporate.