Dr. RP Singh is a consulting doctor working at a large hospital based out of Delhi with an entrepreneurial streak. He wished to start a new business, managing lab machines for clinics. Given the large, upfront capital investment required, he needed to get a business loan. However, getting a loan for his start-up at a reasonable cost was proving to be nearly impossible given the absence of a track record and the multi-geography nature of work and collateral.
The good news that you have been waiting for: interest rates have finally started inching downward. Copious flows of deposits have now allowed banks the leeway to reduce lending costs across maturities and loan products. SBI, Union Bank, and PNB have taken up the gauntlet of reducing MCLR (Marginal Cost of Funds Based Lending Rate) anywhere between 65-90bps (100bps = 1%). Feedback from banks and other lending agencies suggests that others will follow suit soon enough in order to remain competitive.
The crucial 50 day period following the demonetisation announcement is about to end. This period has been characterised by economic convulsions, adjustments, and apprehension about the future. The difficulties that businesses small and large have faced in this time are real and well known. However, the feelings of apprehension are as real for lenders as they are for borrowers.
Following demonetisation most lenders have gone into wait and watch mode as their risk appetite has gone down even as borrower risk profiles have gone up. According to RBI data , credit or loan growth for the fortnight that ended November 25 – the first reporting fortnight after demonetisation – declined to 6.6% from 7.9% on a year-on-year basis in the previous fortnight, i.e. before the demonetisation announcement. This is nearly half of the long period loan growth rate of 12.9% between 2012 and 2016. In the fortnight ended December 11 (the latest available), YOY growth dropped even further to 5.7%.