For lower rates to matter to growth, one returns to the transmission debate. In December, RBI proposed banks to link their floating rate loans to external benchmarks, such as the repo rate, 91-day T-bill rate and 182-day T-bill, amongst others. An RBI paper established that banks’ gross NPA and stressed assets ratios impact banks’ net interest margins, prodding them to build in a margin over their lending rates. Concurrently, a downward adjustment in rates starts with the deposit rates, however in this cycle, deposit growth has lagged a rebound in loans, keeping the loan to deposit ratio sticky at highs. This stickiness on the liability side of the banks’ balance sheet lowers the impetus for banks to pass benefits on to assets (i.e.

Source: Mint April 01, 2019 21:56 UTC