In a sort of reprimand to the banking sector for its failure in bringing down interest rates, the Economic Survey today said borrowers are turning to alternate and cheaper funding sources while liquidity-flush banks are parking their surplus money with the Reserve Bank.
"The transmission of monetary policy measures (geared towards reviving economic growth momentum) continues to be sluggish and differential in its impact across various segments of the financial markets," said the pre-Budget statement on the country's economic health.
The RBI has been revising down its policy rates since the outbreak of the global financial crisis in September 2008. While the downward revision got transmitted to the money and the government securities markets, "the transmission has been slow and lagged in the case of credit market."
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The Survey noted that the marginal decline in the lending rates of banks — public, private and foreign — was "not sufficient to accelerate the demand for bank credit."
"Consequently, while borrowers have turned to alternate sources of possibly cheaper finance to meet their funding needs, banks flush with liquidity parked their surplus funds under the reverse repo window (of RBI)."
There have been a spurt in the borrowers, mostly corporate, tapping alternate funding sources such as through issue of debt securities, fixed-deposits and equity market. Although easier and at times cheaper, these avenues are considered to have higher risks attached to them when compared to the bank credit.