Banks flush with funds but reluctant to pursue aggressive lending

Loan growth for banks is yet to pick up despite a 100 bps cut in the policy repo rate by the Reserve Bank of India (RBI) since February

A few days back, a higher-rated PSU got a short term loan of ₹1,000 crore from a public sector lender at 6.10 per cent. While it is normal for better-rated entities to get a sweeter deal from lenders, this rate surprised many market observers as it would barely cover the bank’s cost of funds. 

The reason for short term rates to fall this low is the huge surplus liquidity in the banking system, that has averaged ₹3 trillion since the start of June, and even topped ₹4 trillion on some days. And this is expected to persist over the next