Despite the Reserve Bank of India’s (RBI) pause button on policy rates since Feb 2023, lenders increased deposit rates by an average of 96 basis points (bps) through FY24, according to The Economic Times (ET) citing a State Bank of India (SBI) research report.
One basis point is equivalent to a hundredth of a percentage point.
As per the report, Credit demand outperformed deposit growth, pushing lenders to hike rates. Bank credit grew 20.2% compared to a 13.5% rise in deposits for FY24.
It said the weighted average domestic term deposit rates (WADTDR) on outstanding deposits grew 96 bps in the previous fiscal year. The report further pointed out that the deposit rates were increased in the second half of FY24.
Liquidity in the banking system progressively tightened over 2023, except a couple of months after the return of Rs 2,000 banknotes into the system. In May last year, the RBI announced the withdrawal of the highest denomination currency notes from circulation.
With the central bank announcing an incremental cash reserve ratio (CRR) in August to impound excess funds that were brought into the system due to the ban on Rs 2,000 banknotes, banking system liquidity progressively turned tighter.
Also Read: RBI Mandates Banks To Provide Key Facts Statement
From August to January, the weighted average call rate (WACR) was broadly around 6.75%, up 25 basis points compared to the RBI’s repo rate of 6.50%. The liquidity deficit, as measured by banks’ borrowing from the RBI, grew to a multi-year high of Rs 3.3 lakh crore in January. The weighted average call rate is understood as the operating target of the RBI’s monetary policy.
The tighter liquidity, which was in line with the RBI’s policy stance of withdrawal of accommodation, was on account of a faster pace of bank credit growth than deposit growth and intermittent activities by the top bank in the foreign exchange market, said a banker.
The RBI intervenes in the foreign exchange market through the sale of dollars or purchases to calm volatility in the rupee’s exchange rate.
