Aided by comfortable liquidity and stronger deposit growth, banks may now be able to pass on the benefits of policy rate cuts that the central bank announced in the past quarters. The Reserve Bank of India (RBI) had cut 25 basis points (bps) in three consecutive policy reviews since end January. Banks were, however, not able cut lending rates as aggressively owing to liquidity issues and lower credit demand. “After nearly three years, the gap between deposit and credit growth has closed. Since mid-2010, credit has been growing far in excess of deposit growth,” said Sonal Varma, economist at Nomura Securities. “This widening wedge between deposit and credit growth has been a key structural factor behind worsening liquidity conditions,” she added............
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