RBI's liquidity measures haven't lowered corporate loan costs

The Reserve Bank of India (RBI) has injected over Rs 5 lakh crore into the banking system since mid-January. This effort aims to ensure there is enough liquidity and to help make loans cheaper for borrowers. Despite this, the cost of borrowing for companies has not changed. In addition to the earlier measures, the RBI plans to add another Rs 50,000 crore through bond repurchases. A recent cut in the repo rate by 25 basis points in February was intended to benefit homebuyers. However, corporate borrowing costs remain firm because the interest rates for businesses are tied to the one-year marginal cost of lending rates (MCLR), which have not dropped. The State Bank of India, India's largest lender, still has a one-year MCLR of 9%, its highest level since the RBI started raising rates. Banks are cautious about lowering interest rates on term deposits. This caution stems from a situation where credit growth, at 9.5% until the end of February, is outpacing deposit growth, which is only 8.8%. Since the repo rate was cut, most major banks have not reduced their deposit rates, although some smaller finance banks have offered rates above 8% as they reassess their growth targets due to sector challenges. The RBI's liquidity measures have helped stabilize the banking system, but they have not fully accomplished the goal of lowering short-term interest rates yet. Ongoing economic uncertainties continue to impact this. Bankers believe that costs of borrowing may decrease in the first quarter of the next financial year, as lending demands increase during the year-end period.