As deleveraging started, investors and savers around the world wanted their money back. So, worldwide, the dollar was moving back to the US, which is why you saw a dramatic appreciation in the US currency against all other currencies. Dollar was also going away from India and this led to a tsunami-like situation. There was a mad rush of the dollar going back home. They were sucking liquidity out. Two things were happening. One, the rupee was depreciating because of the dollar outflow. Then, the RBI was supplying dollars to the market, and the moment you do that, you are sucking out rupees. So you had a depreciating rupee and a tightening interest rate situation as massive outflow of dollar was happening.

•Saubhik ChakraBarti: Both deposit and lending rates have gone up. If in the next six months, interest rates are to come down, what do you think should happen?

Because of the scare which we saw in the second half of September or early October, where you saw inter-bank rates going up substantially, there was an element of worry—let us take as much money as we can. So, the banking system feared what would happen if the money suddenly evaporates. The psychology of banks is that they should spare some money and keep the deposit rates high. That is the one general situation. Also, once I start taking deposits, I must keep more liquidity with me. And the moment I keep more liquidity on which I am earning low returns, I am carrying negative spreads. So, whatever I lend, I have to lend higher. As an example, look at some of these electricity boards. They are subsidising the consumers. So they keep the industrial rates so high that it becomes very tough for the industry to afford. In a way, if the banks are borrowing at high rates, that is an issue but that is coming out of this shortage worry. One thing is clear: banks did not price risk well.

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