CRR has been cut to 6.5% bringing in 40000 crores in the market. Banks have been asked to lend the money. Lets see where they could end up lending....
If you were running a bank...
Would you lend to the farmers for buying seeds, tractors, harvesting equipment, hauling equipment, etc. only to be told later that you can forget the loan and it will converted to a 10 year govt bond earning you a measly 7%?
Would you lend to a small scale industrial entrepreneur who does not know what are accounts and who would hide all his misdoings as stock/inventory in his balance sheet. would you finance his junk called inventory and wait till he defaults and then reschedule his loan so that it does not pop up as NPA on your books?
Would you lend to the sophisticated corporate who would indulge in speculation in real estate setting up useless malls in the remotest of places, where people do only window shopping?
Would you lend to Mutual funds who are facing redemption pressures and holding stocks which have come down 80% of their purchase price. Most of them junk as they were bought chasing unrealistic dreams?
Would you lend to salaried class who are already peeved at their finances and are in no need of more loans?
Would you raise credit card limits, lend for two wheelers, personal loans, etc and write away all the money?
What would you do with this liquidity?
Is liquidity the problem? Is Inflation the problem? Is complacency that "India has slowed its growth to 7.5%" a problem?
This Diwali seems to be more of a Diwala than Diwali.
By the way expect some relief from the markets tomorrow on the back of the CRR cut. But global cues will be bad as always and will act as dampeners.