(FE)
Never before has the repo rate been less relevant than it is currently. The real problem today is neither one of very high interest rates nor that of lack of transmission. It is that companies don’t want to make big investments, not too many individuals want to leverage, and banks, too, are reluctant to lend. So, it is both, a demand and supply problem.
At one level, subdued credit flows in the aftermath of the NBFC crisis are probably the biggest reason for the slowdown in the economy. The irony is that the system is awash with money—an average surplus of around `2 lakh crore, but loan growth is crawling; in the fortnight to November 8, it dropped to a two-year low of 7.9% year-on-year (y-o-y). Seen another way, loans between April and November 8 have increased by a mere 0.8%. The government’s outreach programme, initiated in October, has seen public sector banks open their cheque books; therefore, the loan growth in November may look better. But, the fact is, there is virtually no demand from companies for project finance, and very little for working capital limits. In Q2FY20, State Bank of India’s corporate portfolio grew a little over 2% y-o-y.
