BCCL RBI in its last MPC meeting slashed the repo rate by 25 basis points to 6.25 per cent.
In a good news to the risk-averse investors, the interest rates on bank fixed deposits (FD), recurring deposits (RD) and savings account deposits is expected to increase.
According to India Ratings and Research (Ind-Ra) report, the competition for deposits could intensify as five PSBs have recently come out of RBI’s Prompt Corrective Action (PCA) framework and some of them are likely to look to grow their balance sheets and the private sector banks seeing continuing strong credit growth at 22 per cent year-on-year in third-quarter of FY19, they are likely to solicit deposits even by offering higher rates.
The year-on-year growth in the credit of 12.9 per cent has outperformed the growth rate of 9.3 per cent in deposits, according to the Reserve Bank of India (RBI) deposits and credit statistics of scheduled commercial banks as on December 2018.
With the aforementioned rates for credit growth and deposits growth, the competition for deposits among the banks is set to intensify, India Ratings and Research said.
PPublic Sector Banks (PSBs), with credit growth of 8.4 per cent and deposit growth of 4.9 per cent in the Oct-Dec quarter of FY19, are likely to compete to recoup the market share loss in the deposit to private sector banks over the years, India Ratings said further.
India Ratings and Research also believes that if credit growth continues to outpace deposit growth, then scheduled commercial banks’ reliance on bulk deposits is likely to increase which could lead to a higher cost of funds along with increasing volatility in the asset-liability structure of banks.
Earlier last month, the Reserve Bank of India in its sixth and last Monetary Policy Committee (MPC) meeting slashed the repo rate by 25 basis points or 0.25 per cent to 6.25 per cent.
Further, the six-member Monetary Policy Committee chaired by the new RBI Governor Shaktikanta Das unanimously decided to change the policy stance to ‘neutral’ from ‘calibrated tightening’ while four members voted for a repo rate cut and two opted for status quo.