The Reserve Bank of India cut its policy rate by 25bp earlier this month, and subsequently called upon commercial banks to pass on the cut to borrowers. But the move is likely to have a negligible impact on lending growth to the private sector. After all, banks remain burdened by a sharp build-up of bad debt in recent years, and concerns about meeting global capital requirements have caused lending growth to plummet. As we have argued previously, large-scale capital injections, and increased private participation, are required to get banks to lend again. Until progress is made on this front, the banking sector will remain a constraint on India’s growth prospects over the medium term.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services