Style on borrowing.

"The Indian rupee has outperformed its regional peers in October, aided by the central bank's consistent market interventions that have helped the South Asian currency find its footing after being hit by a barrage of negative cues. The local unit has climbed nearly 1% this month." Taking advantage of a stronger rupee, importers are buying up dollars and "traders say the central bank appears to be defending the currency around the 88-handle." ET. The rupee fell from 84.220 on 5 May 2025 to 88.866 to $1 before strengthening to 87.742 on 22 October. exchangerates.org.uk. It is trading at 88.30 to $1 this morning. xe.com. "Liquidity in India's banking system has turned negative for the first time in a month as the Reserve Bank of India's (RBI) dollar sales to defend the rupee and higher cash withdrawals during the festive season drained funds from the market." In June the RBI cut the interest rate by 50 basis points (bps) to 5.50%, for a total of 100 bps cut this year, and also announced "a phased 100 bps cut in the Cash Reserve Ratio (CRR) - from 4% to 3% - to be implemented in four tranches of 25 bps each, starting in September." ET. This was expected to release Rs 2.5 trillion into the banking system. All this was supposed to encourage bank lending and push down lending rates. However, RBI data show that, "till 22 August, loans to industry had risen by only 6.5%, in contrast with 10.6% to services and 11.8% to retail borrowers." The RBI has also increased lending against shares and mutual funds, freed up funds for non bank finance companies (NBFC) and allowed private equity to buy larger shares in banks and NBFCs. "Rattled by nearly $17 billion in foreign outflows this year, India is doubling down on financial sector reforms in a push to beef up capital buffers and lift investment in the country amid wider worries about the economic hit from US tariffs." Reuters. Industries may be reluctant to avail of easy borrowing but individuals are borrowing to fund lifestyle aspirations such as expensive cars and multiple holidays in a year. "Economist Deepanshu Mohan says that it is not just the affluent class but those in relatively lower economic strata who are aspirational and comfortable with a credit -fueled lifestyle spending." "Ritesh Srivastava, founder of FREED, a platform that helps people overcome debt-related issues," said  that "between 2021-25, the company resolved Rs 2 billion of debt and enrolled 38,000 customers." "The stressed unsecured retail debt size is $35-45 billion in India, according to FREED." TOI. The RBI is pushing banks to increase lending by trying to force down lending rates by flooding the banking system with cash. However, yields on the benchmark 10-year government bonds are at 6.540% this morning. in.investing.com. If the government is having to borrow at over 100 bps higher than RBI interest rate, how can industries borrow cheaply? If the debt levels in middle and lower-middle classes pile up people will be forced to cut spending. That will depress demand and industries will be loathe to invest in new capacity. Is the RBI pushing on a string?