RBI eases lending rules to revive credit growth as bank lending slows and consumption weakens
repo rate on a downcycle, it has reduced risk weights on bank lending to non-banks and microlenders.
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This last step, announced this week, was called for because bank lending growth to this segment has halved in the 12 months since the higher weights were introduced to tame runaway retail credit.
Consumption, too, has slowed down alongside overall bank lending in the past year, and RBI is adjusting its monetary stance accordingly. The central bank and GoI are on the same page about reviving consumption through tax giveaways and softer lending conditions.
Credit growth has been affected as banks trimmed their exposure to non-banks and tried to get their credit-deposit ratio on a better footing. Banks are putting more effort into raising deposits as retail investment in MFs gathers pace.
The interest rate downcycle should make deposit mobilisation easier for banks without affecting their profitability due to higher deposit rates. Lower risk weights on lending to non-banks and microlenders will also reduce the cost of capital for them. This segment was caught in the pincers of high bank borrowing costs and expensive overseas credit due to the declining rupee.
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