0.96% rise in FY24! Why banks are increasing deposit rates


Lenders increased deposit rates Despite the Reserve Bank of India predicting an average increase of 96 basis points during FY 2024 (reserve Bank of India) Keeping policy rates stable from February 2023 state Bank of India There has been an industry-wide effort to raise deposits for continued resolution, according to a research report released this week demand for loan Amid declining liquidity. One basis point is equal to one hundredth of one percentage point.
Demand for loans exceeded the growth in deposits, forcing lenders to raise rates, ET said, quoting a State Bank of India report. The State Bank of India report noted that bank credit grew by 20.2% compared to 13.5% growth in deposits during fiscal year 2024.
The report noted that weighted average domestic term deposit rates (WADTDR) for existing deposits have increased by 96 basis points in the last financial year. Additionally, it highlighted that deposit rates were raised during the latter half of fiscal year 2024.

increase in bank deposits

increase in bank deposits

Liquidity within the banking system was gradually decreasing throughout the year 2023, except for a few months after the reintroduction of Rs 2,000 banknotes into the system. In May 2023, RBI announced the withdrawal of Rs 2,000 notes from circulation.
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Following the announcement in August by the Reserve Bank of India regarding the additional cash reserve ratio to capture the additional money entering the system as a result of the re-issuance of ₹2,000 notes, liquidity in the banking system gradually began to decline. .
Between August and January, the weighted average call rate (WACR), which serves as the operational focus of the RBI's monetary policy, averaged around 6.75%, higher than the central bank's current rate. repo rate Up 25 basis points to 6.50%. By January, the liquidity shortfall, through banks' borrowings from the RBI, rose to a multi-year peak of Rs 3.3 lakh crore.
The increased liquidity crunch resulted from a faster rate of bank credit expansion than deposit growth, in line with the Reserve Bank of India's policy of tapering accommodation, as well as sporadic intervention by the central bank in the foreign exchange market.
A banker said that the central bank works by selling or buying dollars in the foreign exchange market to reduce fluctuations in the exchange rate of the rupee. Selling of dollars drains rupee liquidity from the banking system, he said while explaining the reason behind tightening of liquidity.

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