Lenders namely ICICI, Canara, and HDFC have increased their deposit rates.
After months of hesitation, banks have gradually started to raise deposit rates as credit growth continues to outpace deposit deposits at a time when system liquidity is drying up after the pandemic.
Current hikes, including holiday specials, have brought interest rates on certain deposits to 7% or more.
Banks raised lending rates but were unwilling to raise deposit rates. However, due to the lack of abundant liquidity, it now has to attract depositors.
Shaktikanta Das, RBI Governor, said on 30 September that “excess liquidity in the banking system amounted to £2.3 trillion between August and 28 September”.
For the two weeks that ended September 23, the growth rate of non-food loans increased by 16.9% compared to the same period last year, and the growth rate of deposits was about 9.2%, which has been slowly declining since the beginning of the year.
“We have never seen this 700-basis point difference between growth in advances and deposits in the recent past, and this explains the kind of pressure on the resources side,” said Jordy Chacko, executive director at IDBI Bank.
Bankers said the rate hike was meant to keep customers with large deposits, an area more sensitive to interest rate changes than retail depositors.
The banker mentioned above also said that lenders are wary of high deposit rates as they affect the value of funds. Therefore, the increase in deposit interest rates is small.
The widening gap between credit growth and deposit growth could create supply-side problems that could ultimately curb credit growth, he said.
