Synopsis: Bank deposit rates in India are projected to remain stable through the end of the fiscal year, as lenders strive to meet increasing loan demands. Despite a recent cut in the Cash Reserve Ratio (CRR) by the Reserve Bank of India (RBI), liquidity remains tight, prompting banks to offer competitive deposit rates to attract funds.
Stable Deposit Rates Amidst Growing Credit Demand:
Interest rates on bank deposits are anticipated to hold steady for the remainder of the fiscal year.
Lenders are under pressure to mobilize funds to satisfy the expected surge in loan demand during the fourth quarter.
The recent 50 basis points reduction in the CRR by the RBI, lowering it to 4%, has infused approximately ₹1.16 trillion into the banking system, providing some liquidity relief.
Liquidity Constraints and Competitive Deposit Rates:
Despite the CRR cut, the banking system continues to experience liquidity constraints.
As of December 16, the system faced a deficit of ₹1.11 trillion, a significant shift from the average surplus of ₹25,000 crore observed in the first fortnight of December.
This tightening liquidity, coupled with a credit growth rate of 10.6% year-on-year as of November 29, has led banks to maintain attractive deposit rates to draw in funds.
Analysts' Insights:
Karan Gupta, Director of Financial Institutions at India Ratings, noted, "While system liquidity is likely to continue to be in deficit in December 2024, the recent CRR cut by the RBI should provide some relief. Deposit rates are unlikely to show a material decline as the busy credit season lies ahead."
Conclusion:
In summary, Indian banks are expected to maintain current deposit rates through the fiscal year's end to attract necessary funds amid rising loan demand and persistent liquidity challenges.
The RBI's recent CRR reduction offers some relief; however, the ongoing busy credit season and tight liquidity conditions will likely keep deposit rates steady in the near term.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Readers are encouraged to consult with a qualified financial advisor before making any investment or financial decisions.
