Last year was goldilocks scenario for private banks and NBFCs. Demonetisation pushed up deposit inflow and a Dovish monetary policy has seen a reduction of policy rate by 175 bps since Jan'16. This was due to slowing growth, benign inflationary expectations on the back of falling crude and commodity prices and it famously brought down interest rates. This, along with a hamstrung Public Sector Banking system aided private lenders loan growth. YOY loan growth in the system as on 30/11 is 10% and deposit growth only 4% result of which Excess liquidity of Rs.4 trillion in April is now only Rs.80,000crores. Come March and we are likely to see a scramble for deposits. Inflation has picked up to a 8 month high, oil prices are moving up. FIIs have invested $16 billion in Debt in trailing 12 months at average yields of 6.5%. G-sec yields already at 7.28% As this moves higher, somewhere they will cut losses so any flow out will put pressure on rupee to head south. Economic Growth is picking up slowly. The central bank has already signalled a pause but the combination of the factors above means interest rates are headed north. 25-50 bps in 2019 is a possibility. As it appears to me, this is not an if, its a when. Fasten your seat belts, this roller coaster is on its way up.
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