Rate hike may intensify banks’ competition for deposits as credit growth stays strong

The immediate pressure on deposit costs, however, has eased because banks received substantial foreign currency inflows through the FCNR(B) facility, which are being targeted to be deployed by fiscal end.

Bank credit growth at 18.1% is outpacing deposit growth of 17.3%, keeping pressure on banks to mobilise fresh deposits. Large FCNR(B) inflows have created a liquidity surplus, allowing banks to reduce reliance on relatively expensive wholesale funding. Outstanding certificates of deposit fell to Rs 5.60 lakh crore by September 15 from about Rs 6.90 lakh crore in mid-August. As surplus liquidity is absorbed, strong credit demand could revive competition for deposits and put pressure on banks’ funding costs and margins.

The Reserve Bank of India’s rate hike could eventually revive competition for deposits as banks continue to see credit grow faster than deposits, but a large liquidity surplus from FCNR(B) inflows is providing lenders with a temporary funding cushion. The system-wide liquidity surplus is expected to be absorbed over the course of FY27, potentially bringing deposit mobilisation and funding costs back into focus if strong credit growth persists. Bank credit grew 18.1% year-on-year as of September 15, compared with 17.3% growth in deposits, indicating that loan growth continues to outpace the expansion of banks’ deposit base. Outstanding deposits fell by Rs 2.49 lakh crore during the fortnight, while outstanding bank credit declined by Rs 57,894 crore, according to RBI data. Advt

The immediate pressure on deposit costs , however, has eased because banks received substantial foreign currency inflows through the FCNR(B) facility.

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