Despite liquidity in the system, commercial banks are not able to lend because of low demand for private sector’s credit that has borrowed quite heavily in last few years. While there has been growth in working capital, the demand for fixed investment has been subdued. In some cases, corporate sector is further meeting their demand either from retained earnings or foreign borrowings.
In some sectors, banks have deliberately slowed down to now assess and develop their own capacities to lend more prudently. The process of mergers and acquisition in a number of banks also impact private sector credit as most “acquired banks” slowed down their business.