The RBI, however, continues to be overcautious — it cut the repo rate by a marginal 25 basis points in its annual policy review on Tuesday when the time is ripe for more drastic cuts. But it isn’t all the RBI’s fault. Public sector banks have been lazy at cutting lending rates in sync with the repo rate cuts — they are comfortable making handsome profits at the current rates. Unfortunately, private sector banks, which should have been cutting rates to outcompete PSU banks, are yet to recover from the big, but patently false, spook of failure they received at the height of the financial crisis last year.

It will be a great irony for India if the sector which survived the biggest global financial crisis in many decades relatively unscathed (especially when compared with its global banking peers) now becomes the sector which snuffs out resilience and quick recovery elsewhere in the economy.

dhiraj.nayyar@expressindia.com