His statement comes as the gap between credit and deposit growth is widening. There are concerns that the sub 9 per cent growth in deposit may pose funding challenges for lenders as they enter the festival season, when there is high credit demand.
According to Reserve Bank of India (RBI) data, credit growth in the system was 14 per cent during the fortnight ending July 15. Deposit growth was just 8.4 per cent the same period, resulting in the widening of the credit-deposit growth gap to 560 basis points (bps).
“The most likely scenario is that the impact of the rate hike will be passed on by the bank to the deposit rates. Already the trend has started. Quite a number of banks have increased their deposit rates in the recent weeks and this trend will continue,” said Das in Mumbai after a meeting of the monetary policy committee that hiked the repo rate by 50 basis points.
“When there is a credit off-take, the banks can sustain and support that offtake only if they have higher deposits. They cannot be relying on central bank money on a perennial basis to support credit offtake. They have to mobilize their own resources and their own funds. For supporting the credit off-take, the banks will raise their deposit rates and they will take efforts to mobilise more deposits”, he said.
Michael Patra, deputy Governor at RBI said, “There is very aggressive deposit mobilisation, starting with bulk deposits. And we expect deposit mobilization to catch up with credit very quickly”.
System liquidity is in surplus mode, with average daily absorption under the liquidity adjustment facility (LAF) at Rs 3.8 trillion crore in June-July. As liquidity in the system erodes to support high credit demand, banks may have to chase deposits aggressively.
RBI has increased the repo rate by 140 basis points since May. That takes the cumulative rate to 5.40 per cent, 25 basis points higher than the pre-pandemic level. Banks have raised lending rates but their deposit rates have not kept pace.
“…as there is a correction in interest rates, deposit rates albeit with a little bit of a lag will also find a new level, real interest rates which have been negative will also again get corrected therefore, money which was flowing to channels outside the banks will start coming back in,” said Sanjiv Chadha, managing director and chief executive officer of Bank of Baroda, in an earnings call last week.
According to SBI Research, the weighted average lending rate on outstanding and fresh rupee loans has gone up by 19 and 31 basis points from March 2022. The weighted average domestic term deposit rate on outstanding deposits has moved up 10 basis points the same time. Alongside, as per the RBI’s July bulletin, the incremental credit to deposit ratio has risen from 77.2 per cent in end-March to 246.8 per cent as of June 17, 2022.
“The rate hikes also triggered an upward adjustment in the benchmark lending rates by the banks. Term deposit rates are also increasing which should bode well for the availability of funds with the banks in the context of sustained buoyancy in credit demand,” Governor Das said.