Bank should extend the benefit of lower interest rates beyond the retail sector, indicating that investors should cut the cost of loans for companies. Banks had benefited from RBI’s reduction in policy rates as well as the inflow of low-cost deposits in current and savings accounts in November and December. The average lending rate reduction (by banks) has been less.
As sustained by RBI, as well as the government, banks have pocketed the gains of the rate reduction and only in late December after a prod by the Centre the banks pared their benchmark rate by up to 90 basis points. But the reduction for home loans was lower and for other categories even lower.
The main focus of the bankers as they believed that lower rates could encourage demand was more on the retail segment, unlike the corporate sector which is besieged by a combination of excess production capacity and a high level of debt.