Banks’ incremental credit to deposit ratio, the proportion of fresh deposits that banks use for fresh lending, has crossed the 100 percentage point mark. This indicates that banks are selling to supplement their investment portfolio. credit demand Pressurizing the fluidity in the system.
As bank credit surged to one of the highest levels since the pandemic at 14 per cent, the incremental credit deposit ratio stood at 113 per cent till July 15 and has been hovering around the 100 percentage mark since May this year, latest Reserve Bank data indicates. does. This indicates that interest rates may rise further.
“When credit offtake occurs, liquidity will run out and there is always a liquidity leak through an increase in currency in circulation” reserve Bank of India Governor Shaktikanta Das Said in a banking seminar last fortnight. “We are also increasing our policy rates. So, going forward, banks have started adjusting their asset prices.”
On the liability side also, some banks have started increasing the deposit rates. The latest RBI data indicated that the weighted average domestic fixed deposit rate on outstanding rupee fixed deposits of commercial banks rose by 4 bps (one basis point 0.01 per cent) to 5.07 per cent in May and 6 bps in June, up 90 bps. after the increase. Benchmark policy repo rates during this period. “Going forward, when liquidity is required, banks will increase deposit rates continuously and gradually,” Governor Das said. “When we increase the policy rates which also affects the deposit rates in the system on the liability side. There is transmission time but eventually, it will also transmit on deposit rates”. The Monetary Policy Committee is expected to vote for a hike of up to 50 bps at its meeting later this week as consumer inflation remains above the end of the target band of 6 per cent. The policy rate currently stands at 4.9 per cent, which is 25 bps lower than the pre-pandemic rate of 5.15 per cent.
To be sure, the incremental investment deposit ratio has been below the 50 per cent mark for most of the fortnight so far in the current fiscal, indicating that banks are slow on bond investments. Economists also attribute a pickup in credit demand to the tightening of liquidity in the system. The average system liquidity surplus in the current fortnight stands at 1.3 tonnes as against the surplus of 2.7 tonnes observed in the previous fortnight. One of the factors contributing to tight liquidity is that credit accretion is happening at a faster pace, according to Deepanvita MajumdariEconomist AT
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