Deposit rates likely to rise 105 bps on repo rate hike to 190 bps: SBI report | Rare Techy

While the share of current deposits and deposits (CASA) in the banking system is 45 percent, a 190 basis point (bps) increase in the repo rate could at best lead to a 105-bps increase in deposit rates. This is because it is only 55 per cent of time deposits that require rate adjustment, resulting in less than full adjustment of deposit rates to the repo rate, a report by the economic research division of State Bank of India (SBI) said on Monday said. .

“Any increase in the deposit rate beyond that would be a plus,” the report said.

In the current round of monetary policy tightening, the six-member monetary policy committee (MPC) hiked the repo rate by 190 bps. As a result, banks have adjusted their lending rates rapidly, resulting in the marginal cost of funds-based lending rate (MCLR) rising by 50-70 bps and benchmark-linked external borrowings rising by a total of 190 bps. However, deposit rates have not caught up with loan rates.

“The average time deposit rate of SCBs, which reflects prevailing card rates on new deposits, increased by 26 bps in May-September 2022. However, the rate of change in long-term retail time deposit rates, for the period has been higher for longer. maturities. Beyond September, there has been a large increase in deposit rates,” said the SBI report.

In the past few weeks, as the banking system’s liquidity has tightened, banks have increased their deposit rates to obtain steady liquidity to finance high credit demand in the economy.

SBI has increased its deposit rates by up to 80 bps on select periods, effective from October 22. Other banks such as ICICI Bank, Kotak Mahindra Bank, HDFC Bank, Punjab National Bank, and several others have also hiked their deposit rates in the last few weeks as the competition to get funds for credit growth has intensified.

According to the report, RBI is forcing banks to increase their deposit rates to get more deposits or secured funds to finance credit growth and this could be one of the reasons why liquidity is in deficit mode for a long time. stay

In September, the system’s capacity has been moderated due to the early tax release and excessive credit taking. According to the report, the liquidity shortfall in the banking system is now consistently at Rs 60,000 crore in the last four days.

According to the latest RBI data, bank credit to the economy is growing at 17.9 percent, a multi-year high while deposits are growing at just 9.6 percent, raising concerns that slow deposit growth could be a drag on credit growth. that goes forward.