the industry regarding the risks involved with such excess liquidity. According to economic researchers at the State Bank of India (SBI), banks are currently facing significant pressure on margins as a result of low market rates caused by the surplus liquidity in the banking system, which has totalled almost ₹10 trillion (US$132.5 billion) over six months now.
“It is now pertinent to ask whether the credit risk is getting adequately reflected in pricing. A back-of-the-envelope estimate suggests the core funding cost of the banking system that includes cost of deposits, negative carry on SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio) and Return on Assets is currently at 6 per cent, while the reverse repo rate is at 3.35 per cent,” Soumya Kanti Ghosh, the Group Chief Economic Adviser at SBI wrote in the report.
Responding to this report, the Governor of the Reserve Bank of India (RBI), Shaktikanta Das called on lenders across the country to carry out their own risk assessments and to price their loans accordingly. “I don’t think SBI has flagged this as a complaint. I think SBI has flagged this issue as a concern […] which is for banks to take note of,” he said during a press conference last week. “Whatever be the liquidity situation, in any case banks have enough liquidity and RBI has the reverse repo windows open. It is for banks to do their own risk assessment and price their loans accordingly.”
