The country’s lenders chose to park a record ₹6.9 trillion with the Reserve Bank of India (RBI) on Monday for a paltry return of 4%, even though buying government bonds or giving out loans would have got them higher rates.
As the adjoining chart shows, banks have been keeping a colossal amount of money with RBI. The reasons behind this are many.
First, demand for loans is very low, considering that the lockdown has reduced business activity to a minimum. Loans are being largely taken for working capital or for refinancing scheduled repayments.
The three-month repayment holiday given by banks means that refinancing needs are also very low. But whatever demand for funds comes must also pass the trust filter of lenders.