Bank News: Indian Banking Sector Faces Cash Crunch, May Impact Loan and Credit System

Bank News: The Indian banking sector is currently experiencing a huge liquidity shortage, which may have a negative impact on home loans, student loans, vehicle loans, and other types of credit. According to the Bloomberg Economics Index, low cash reserves are prohibiting banks from making new loans. This is due to the Reserve Bank of India's (RBI) efforts to stabilize the rupee by selling dollars, as the rupee's collapse has produced a dollar shortage in the economy. The situation has been worsened by large cash withdrawals for the third quarter's advance tax payments, which have drained almost Rs 1.4 lakh crore from the banking sector.  

RBI Measures to Prevent Cash Shortage 

Banks have faced a sustained cash deficit for the previous six months, with the gap exceeding Rs 1.5 lakh crore at the start of this week. Experts believe that if the rupee’s drop continues and the RBI continues to sell dollars, the situation would deteriorate further. To help alleviate the situation, the RBI cut the cash reserve ratio by 50 basis points, bringing some respite to banks. However, the liquidity crunch’s larger implications for credit availability remain worrying, with borrowers potentially facing delays in loan applications.