THE HINDU Editorial Vocabulary-January 4, 2017- Topic 2
A nudge to borrowers
The State Bank of India’s decision to cut
its marginal cost of funds based lending rate (MCLR) by 90 basis points is a timely
nudge to borrowers, especially given the sharp slowdown in credit growth in the
current fiscal year.
The timing of the cut is not surprising, given that the country’s largest commercial lender is awash with funds held in current and savings account (CASA) deposits following the Centre’s decision to withdraw high-value banknotes and impose withdrawal curbs on account-holders. With demand across sectors having taken a knock in the wake of the resultant cash crunch, the SBI’s decision to reduce borrowing costs is likely to spur some credit-fuelled buying including in sectors such as automobiles. Latest data from the Reserve Bank of India show that growth in bank credit decelerated to 1.2 per cent in the April 1-December 9, 2016 period, compared with the 6.2 per cent pace witnessed in the comparable period in 2015. Deposit growth, on the other hand, almost doubled in pace, accelerating from 7.1 per cent in the same period in 2015 to 13.6 per cent in 2016. Banks have thus found themselves in an unenviable situation where their liabilities (the money they owe depositors) have jumped sharply, while their assets (the loans they give) have instead almost stagnated. This has added to their woes at a time when mounting bad loans have pushed most public sector banks to post record quarterly losses. The demonetisation decision has willy-nilly ended up providing banks with the windfall of low-cost deposits that could potentially serve as the launch pad to a credit-backed demand stimulus in the economy.
The timing of the cut is not surprising, given that the country’s largest commercial lender is awash with funds held in current and savings account (CASA) deposits following the Centre’s decision to withdraw high-value banknotes and impose withdrawal curbs on account-holders. With demand across sectors having taken a knock in the wake of the resultant cash crunch, the SBI’s decision to reduce borrowing costs is likely to spur some credit-fuelled buying including in sectors such as automobiles. Latest data from the Reserve Bank of India show that growth in bank credit decelerated to 1.2 per cent in the April 1-December 9, 2016 period, compared with the 6.2 per cent pace witnessed in the comparable period in 2015. Deposit growth, on the other hand, almost doubled in pace, accelerating from 7.1 per cent in the same period in 2015 to 13.6 per cent in 2016. Banks have thus found themselves in an unenviable situation where their liabilities (the money they owe depositors) have jumped sharply, while their assets (the loans they give) have instead almost stagnated. This has added to their woes at a time when mounting bad loans have pushed most public sector banks to post record quarterly losses. The demonetisation decision has willy-nilly ended up providing banks with the windfall of low-cost deposits that could potentially serve as the launch pad to a credit-backed demand stimulus in the economy.
Other
banks have also cut lending rates, and lenders are
now vying with each other to innovatively structure credit products, including
home loans, in a bid to capitalise on what they hope will be an enduring
revival in the appetite for borrowing. Still, the constraint of needing to fund
the substantially higher interest commitments on deposits that have swelled the
bank’s liabilities have also forced the SBI to raise the spread it applies on
home loans — the additional markup interest it charges over the benchmark
one-year MCLR — to a minimum of 50 basis points from 25 basis points earlier.
The question is whether this reduction in borrowing costs will be enough to
restore consumer confidence. With the Union budget less than a month away, the coming
weeks could well serve to provide clear signals on the potential need for a
fiscal stimulus to reinvigorate flagging economic growth, especially if a
revival in credit growth is going to be slower than anticipated.
Vocabulary
Nudge: a light touch or push.
Example: He gave her shoulder a nudge
Synonyms: poke, prod, jog, jab, push
Awash: the fact or condition of being banal.
Example: There is an essential banality to the story he tells
Synonyms: triteness, vapidity, staleness, unimaginativeness, lack
of originality
Decelerated: machine, or process reduce speed.
Example: International growth rates decelerated in the early 1970s
Synonyms: slow down, slow up, ease up, slack up
Accelerating: a vehicle or other physical object begin to move more quickly.
Example: The car accelerated toward her
Unenviable: difficult, undesirable, or unpleasant.
Example: He had the unenviable task of trying to reconcile their disparate interests
Synonyms: disagreeable, nasty, unpleasant, undesirable, unfortunate, unlucky
Stagnated: water or air cease to flow or move.
Example: Pointed out was the fact that due to the closure of these sluice gates
there was no flow of water, resulting in water stagnating in the khazan lands.
Synonyms: stop flowing, become stagnant, become trapped, stand
Willy-nilly: whether one likes it or not.
Example: He would be forced to collaborate willy-nilly
Synonyms: haphazardly, at random, randomly, every which way, here
and there
Stimulus: a thing or event that evokes a specific functional reaction in an organ or
tissue.
Example: Areas of the brain which respond to auditory stimuli
Reinvigorate: give new energy or strength
to.
Example: We are fully committed to reinvigorating the economy of the area
Anticipated: expect or predict.
Example: She anticipated scorn on her return to the theater
Synonyms: expect, foresee, predict, be prepared for, bargain
on