Credit risk not being fairly priced in by banks, says SBI report

Credit demand at decadal highs and liquidity remains significantly downsized, says research

Banks are not adequately pricing in credit risk as the liquidity condition tightens and interest rates remain high, said State Bank of India in a research report.

Over the last few months, the Reserve Bank of India (RBI) has front-loaded rate hikes and calibrated excess liquidity in the banking system as it seeks to rein in elevated inflation.

While the liquidity conditions have eased in November on the back of the government accelerating spending, the average net durable liquidity injected into the banking system has dropped to Rs 3 trillion from Rs 8.3 trillion in April, SBI research said in