75 Bps Rate cut so far…..Is it!!?

0e47afac-7d48-4b9a-929c-251d3f653e69-originalSince Jan 2015, RBI has reduced the interest rates totally by 75 bps but what does it mean to the end user? Has that rate cut been passed on to the customers? So far the banks have only transferred 15 bps to 25 bps of rate cut to the borrowers. Borrowing costs have only marginally condensed for both individuals and corporates. However, most of the banks have been quick enough in slashing the bulk deposit rates by more than 25 bps.

Though RBI wants this transmission to be at a quicker pace, the banks are reluctant to do so as this would lead to tightening of their net interest margins. Also, even if the banks transmit these rates cut benefits to the borrowers completely, they will still be watchful, about the current NPAs in their balance sheets, and would only allow any further lending at a cautious pace. Hence, the credit off take and liquidity into the system still seems to be an extended phenomenon! Both equity and debt markets will be guardedly observant of this tricky economic state and thus, may remain attractive for long term accumulation, for the investors.

AUTHOR: Neelam Pachauria , CHIEF ADVISOR

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