ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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From Dovish to Hawkish?

This note analyses the banking sector's response to policy changes in terms of how far it has changed deposit and lending rates in recent times. Second, it studies the relationship between the median lending rate of banks and real sector growth. Third, the liquidity and credit constraints faced by the banking industry are discussed. The note concludes with a discussion of monetary and banking policy choices for supporting growth.

Current Statistics

The RBI survey of the private corporate sector shows that the interest cost to gross profits ratio declined from 26.2% in 2008-09 to 23.0% in 2010-11, while the debt to equity ratio also improved from 46.3% in 2008-09 to 41.4% in 2010-11; the rate of growth in gross fixed assets decelerated from 13.7% to 10.5%. Profit after tax to net worth, after improving from 10.7% in 2008-09 to 12.6% in 2009-10 declined to 11.9% in 2010-11. The ratio of retained profits to profit after tax fell from 79.9% to 74.7% during the same period.

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