The deluge of deposits is also forcing banks to lower both deposit and lending rates in next few weeks as they grapple with historic deposit growths
The sudden surge in deposits of over Rs 5 lakh crore into the banks will ensure the smooth repayment of the $12 billion Foreign Currency Non-Resident (Bank) Account deposits that are maturing on November 18 and 25.
The deluge of deposits is also forcing banks to lower both deposit and lending rates in next few weeks as they grapple with historic deposit growths. State Bank of India (SBI), the country's largest lender, fired the first salvo on Wednesday by cutting deposit rates anywhere between 0.15% to 0.25%, the steepest being for the bulk deposits or deposits it accepts from its corporate customers.
SBI has cut rates on some retail term deposits by 0.15% , effective Thursday. Term deposits maturing in a year and 455 days will now fetch interest of 6.90%, against the current 7.05%, while the interest on those maturing in 456 days to less than two years will be 6.95%, compared with the current 7.10%. Third largest private sector lender, Axis Bank reduced its one-year Marginal Cost-based Lending Rate, the rate to which most loans are linked by 0.15% 9.05%.
C Venkat Nageswar, deputy managing director, global markets, SBI, told DNA, "Deposit rates are expected to fall for system. The huge deposits in the banks after the demonetization will see the FCNR(B) deposits getting redeemed without any hiccups. RBI has resorted to measures to suck out liquidity on Wednesday through short-term government bonds, keeping in mind the impending demand. The central bank will see to it that the money comes back in the system since the FCNR(B) repayments are due."
Huge surge in deposits with banks is forcing the Reserve Bank of India (RBI) mop up Rs 1.5 lakh crore through shorter government bonds, so that banks can start earning from their deposits. The RBI is expected to mop up the additional liquidity so that the deposits are effectively deployed. A senior banker with a treasury said, "The deposit surge is a cost for the government as the money is expected to pour into the government bonds."
Of the huge deposits that banks have mopped up in the one week since the demonetization, SBI alone has collected Rs 1,14,139 crore.
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