IMF sees reduced funding costs and decline in lending rates.

The International Monetary Fund (IMF) says the Indian authorities should remain vigilant to risks of the potential of further buildup of non-performing loans, including among private banks and elevated corporate sector vulnerabilities.

The banks have received massive liquidity following the government’s demonetization introduced on 8 November 2016, noted IMF in a report on Regional Economic Outlook – Asia and Pacific “Preparing for Choppy Seas”.

This can reduce banks’ funding costs and lead to decline in lending rates.

“With a surge in bank deposits and waning demand for credit, the weighted average lending rates of banks on new loans declined by 56 basis points during November 2016 and January 2017,” it pointed out.

“That said, even though the financial system is expected to weather the currency-exchange-induced temporary growth slowdown, the authorities should remain vigilant to risks – in view of the potential further buildup of non-performing loans, including among private banks and elevated corporate sector vulnerabilities,” said IMF.

It calls for ensuing prudent support to the affected economic sectors.

The IMF projected 7.2 per cent Gross Domestic Product growths in fiscal 2017-18 and 7.7 per cent in 2018-19, recovering from 6.8 per cent in 2016-17 which slowed down following the demonetization. fii-news.com