A cut in time

Sharp reduction in lending rates can help kick-start credit growth

Banks have started cutting lending rates aggressively after a massive inflow of deposits spurred by the demonetisation of high-value banknotes led to a significant reduction in their cost of funds. According to the latest Reserve Bank of India (RBI) data, bank deposits surged by 15.9 per cent year-on-year (YoY) till December 9, up from 10.9 per cent a year ago. As a result, a CLSA report reckons the incremental cost of new deposits is 3.5-4 per cent. And contrary to concerns expressed in certain quarters that these low-cost funds may go out of the banking system as soon as withdrawal