# RBI warns banks to avoid loan price war

> RBI urges banks to stop loan price competition amid liquidity surge
- Title: RBI warns banks to avoid loan price war · The Economic Times
- Summary: RBI urges banks to stop loan price competition amid liquidity surge Banks risk sticky assets if they compete on loan rates after sudden liquidity inflows
- Keywords: rbi, bank loan price war, fcnr deposits, liquidity management, reserve bank of india, monetary policy committee, interest rate hike, non-banking finance companies, foreign portfolio investors, retail credit growth, warns, banks
- Source: The Economic Times — https://economictimes.indiatimes.com/industry/banking/finance/banking/rbi-warns-banks-against-a-loan-price-war/articleshow/134419709.cms
- Author: Sugata Ghosh
- Published: 2026-09-22T19:13:00+00:00
- Read time: 1 min
- Topics: rbi, bank loan price war, fcnr deposits, liquidity management, reserve bank of india, monetary policy committee, interest rate hike, non-banking finance companies, foreign portfolio investors, retail credit growth
## RBI alerts banks
RBI warns banks against aggressive lending after foreign currency deposits flooded liquidity

> Banks have parked money in government bonds and with RBI which is only a temporary solution in the absence of other avenues
## Liquidity surge
Banks received ₹11 lakh crore from FCNR deposits, but absorbed ₹5.5 lakh crore through swaps and bond sales
## Credit risk warning
RBI fears aggressive lending could create sticky assets as banks chase returns on deposits

> Unless a bank can generate a mark-up of around 2.5% on the loan and generate a net interest margin of 3%, it does not make sense
## Retail credit gap
Retail credit growth at 16% lags total credit growth of 19% despite bank optimism
## NBFC lending risk
Loans to non-banking finance companies growing faster than overall credit growth

> Loans to NBFCs are growing at a significantly higher rate
## Interest rate timing
RBI must balance liquidity absorption costs with avoiding consumption impact during festival season

> While there may be a broad unanimity among MPC members about raising interest rate, particularly after the rate increase by the US Fed, they have to decide on the timing so as not to impact consumption at the start of the festival season
## Key takeaway

Banks risk sticky assets if they compete on loan rates after sudden liquidity inflows