The banks got a bonanza of an estimated Rs 13 lakh crores after the demonetisation of Rs 1,000 and Rs 500 notes on November 8. This gave them a cushion after their balance sheets were battered by rising non-performing assets. Prime Minister Narendra Modi has urged banks to offer more schemes to small and marginalised people as they now have such huge funds. The banks were already funding these sections under RBI guidelines, but funding for small and medium enterprises must be looked at more sympathetically, while keeping commercial interests in mind. Most banks had already cut lending rates by hefty amounts, by their standards. Their rate cuts till now were mostly quarter per cent and on some rare occasions by half per cent.
The nation’s top public sector lender, State Bank of India, set the pace by dropping rates by 90 basis points, and other banks followed with similar or lower amounts. It is likely that those buying homes or other property could benefit the most. Perhaps banks could go a step further, and be more generous with monthly instalment payments of home loans and personal loans. Credit growth to corporates aren’t expected to get a boost as most of them are still not in a position to borrow. They have significant idle capacity, with just 73-75 per cent capacity utilisation. But if retail loans increase, there will be more money in the hands of people, and this could boost consumer demand, which could kickstarting production. Consumer demand, which fuels the economy, took a hit with demonetisation and needs to return.
