| The Indian banking industry has been going through rough weather in recent times. But, its troubles are not restricted to the lending side. Its growth in deposits - the most basic 'raw material' for a bank - is at a fifty (50) year low. At the other end, growth in lending is beginning to pick up after five (5) years of slack. A direct offshoot of this situation is its impact on interest rates in India. If both the slowdown in deposit growth as well as the pick-up in demand for credit were to continue, banks may resort to increasing deposit rates. Further, yields on government bonds could also rise as banks reduce their appetite for buying government bonds. Thus, while many are waiting with bated breath for rates to come down in the economy, this particular problem banks may face could bring down the efficiency with which RBI rate cuts are passed on to borrowers. |
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