Highly indebted Corporates responsible for poor credit growth: RBI report

The Reserve Bank of India has said, corporates working with highly borrowed money are slowing the growth of bank lending and therefore preventing better monetary transmission as they may not be in a position to benefit from falling interest rates. The Bank said this would be due to their high levels of debt in the past few years.



The half-yearly Financial Stability Report (FSR) released in Mumbai yesterday, says, RBI has reduced its short-term lending rate by 75 basis points since the start of this year but banks have passed on only up to 30 bps by reducing their base rates.

It further states that while borrowing has increased, the ability to repay debt and debt servicing ability of the corporates has declined. The gross non-performing advances (GNPAs) ratio may increase to 4.8 per cent by September 2015 from 4.6 per cent in March 2015. The report states there is a need to go beyond capital requirement and adequacy as it may be a consideration with the public sector banks.

In the forward to the Financial Stability Report, Reserve Bank Governor Raghuram Rajan has said that macro-economic fundamentals of the country have improved over the past two years and emerging market economy like India is better placed to face any eventuality.

He, however, cautioned against volatility, caused by conflicting action of the developed world. Mr.Rajan said the country has been able to build buffers to fight any future uncertainty. Reiterating the need for consensus, Rajan said there is a need to be vigilant about the spill over of the Federal Reserve ending the almost nil interest rate regime.