Banks Likely To Hike Deposit Rates To Mobilize Liquidity After Facing Liquidity Crisis Due To ICRR

Banks Liquidity Shortage: In the coming days, you are expected to get more interest on keeping deposits in banks. In order to attract deposits from government to private banks, they can announce an increase in interest rates on FD (Fixed Deposit) to Recurring Deposits. The reason is the cash crunch in front of the banks. In fact, for the first time in the financial year 2023-24, banks have faced cash shortage. In such a situation, to increase the supply of cash, banks can decide to increase the interest rates on deposits, so that common people can deposit more and more money in banks.

Had to borrow from RBI’s MSF

According to RBI data, on Monday, August 21, 2023, there was a cash shortage of Rs 23,644 crore in front of banks. After which banks had to borrow Rs 89,813 crore from RBI Marginal Standing Facility (MSF), which is the highest in a decade. Earlier on June 28, 2023, banks had borrowed Rs 71,050 crore from the RBI Marginal Standing Facility (MSF) at the rate of 6.75 per cent to meet the cash crunch. In case of cash crunch, banks meet the shortfall by borrowing from RBI’s Marginal Standing Facility (MSF).

ICRR increased crisis

On August 10, 2023, the RBI issued orders to banks to keep 10 percent of the deposits received from May 19 to July 28 as Incremental Cash Reserve Ratio (ICRR). During the period from May 19 to July 28, due to the deposit of Rs 2000 notes, the cash in the banks had increased, on which RBI had issued this order to tighten the noose. Giving information about this decision, RBI Governor Shaktikanta Das had then said that from stability of prices to financial stability can be challenged by excess cash.

Higher interest possible on deposits

After this decision of RBI, there was a cash shortage of one lakh crore rupees in front of the banks. In such a situation, to increase cash, banks will have to increase the interest rates on deposits. Means such customers who are planning to deposit their hard earned money in FD or RD of banks can get more interest on their deposits. There is another reason for the shortage of cash. These days instead of keeping their savings in banks, people are investing in mutual fund schemes through SIP. Every month an investment of Rs 15,000 crore is coming in SIP. In such a situation, the pressure of paying more interest in front of the banks is increasing.

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