Banks likely to raise deposit rates to meet credit demand
With the excess liquidity in the banking system getting absorbed due to the Reserve Bank of India’s (RBI) incremental cash reserve ratio (I-CRR) measure, banks are likely to raise deposit rates on select tenors to meet higher credit demand ahead of the upcoming festive season.
Recently RBI asked banks to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023. Lenders have to maintain I-CRR from the fortnight starting on August 12.
According to experts, banks will wait for a fortnight to gauge the liquidity situation, and demand for credit, and later take a call on the quantum of the increase in deposit rates. The hike in deposit rates could be in the range of 25-50 basis points (bps), they said. One basis point is one-hundredth of a percentage point.
“Banks could increase deposit rates by 25-50 basis points in different buckets depending upon the demand for credit and liquidity conditions in the coming few months. After a long time, competitive dynamics in the deposit market have intensified, mostly owing to revivals in credit demand,” said India Ratings and Research’s Director (core analytical group) Soumyajit Niyogi.
