Here’s how borrowers lose when govt orders banks to cut lending rates

……….The RBI has signaled to banks that it will take care of their liquidity needs. It has allowed banks to go below 2 percent of SLR (statutory liquidity ratio) to access standby funds (called MSF, or marginal standing facility) in case of desperate need. Banks are already running excess SLR of 5 percent, giving them a liquidity cushion of around Rs 3,00,000 crore. The natural path for banks to take given rate cuts and given access to liquidity is to reduce deposit rates first. Lower deposit rates will translate to steady to higher profits for banks, as lending rates will remain sticky for a while. Once loans come up for re-pricing, banks will lower loan rates if demand for loans at higher levels is low………………

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