The past three years have seen the banking sector struggling to get its act together. Public sector banks (PSBs) are carrying huge non-performing assets (NPAs) and have also borne the brunt of a record number of corporate debt restructuring (CDR) requests. Each CDR essentially involves a haircut and a large proportion of CDRs turn into NPAs anyway. To make matters worse, credit growth has been at decadal lows. Very stressed balance sheets have not left banks with much room to cut rates. Since 2015, the Reserve Bank of India (RBI) has cut its policy rate multiple times. The central bank has also cut the differential between the repurchase and reverse repurchase rates, (which eases costs for banks). RBI also increased overall liquidity through open market operations. But, little of that has been passed on by banks in lending rate cuts.
India: New entrants and digital players intensify competition
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