Banks are finding themselves in an unenviable position of having ample liquidity, but knowing whom to lend to because of the problems in the economy, V Srinivasan, former deputy MD of Axis Bank told CNBC-TV18.

He said that banks were getting enough deposits even with interest rates as low as 5.50-5.75 percent.

"(Banks have) too much liquidity and not knowing well whom to give it because the people who possibly can give them reasonable return are people who they wouldn’t want to risk (lending to) at this point of time especially since we don’t know what is going to happen post-August; what the outlook for the whole economy is. I think risk aversion will continue and banks have a very tough job on (their hands,” Srinivasan said.

He said that mutual funds too were facing a similar problem.

"Whatever happens to bank deposit rates the mutual funds are going to have the same problem because to find good entities where they can put out money and sleep well..... I think (there are) very few people and therefore you are going to have mutual funds returns also coming down.," he said.

"It is a question of is the risk appetite to try and go towards the riskier portion of the curve away from the quality end right now it is a bit premature in my view," he said.

First Published:Jul 20, 2020 12:34 PM IST