Interest rates on bank deposits are unlikely to fall before the end of this fiscal year as lenders, analysts believe, will likely be under pressure to mobilise funds to meet expected demand for loans in the fourth quarter.Although this month's reduction in the cash reserve ratio (CRR) has provided some liquidity relief to lenders, experts said that banks would refrain from tinkering with rates in the months ahead when credit demand peaks."While system liquidity is likely to continue to be in deficit in December 2024, the recent CRR cut by the RBI should provide some relief. Deposit rates are unlikely to show a material decline as the busy credit season lies ahead," said Karan Gupta, director-financial institutions at India Ratings.The CRR cut released ₹1.16 lakh crore into the system.As of November 29, the banking system's credit growth stood at 10.6% year-on-year, which has moderated from around 13% over the past few months.Deposit growth in the banking system at 10.7% has started to converge to the system credit growth of 10.6% on-year, as of November 29.Liquidity in the banking system has shown a precipitous fall from the average surplus of ₹25,000 crore in the first fortnight of December to a ₹1.11 lakh crore deficit on December 16. This was largely driven by the quarterly advance tax payment by the corporates."The reduction in CRR may not mathematically translate to any change in deposits and lending rate, however, it may have a positive impact on margins of 3-4 basis points for banks," said Soumya Kanti Ghosh, group chief economic adviser at the State Bank of India.The volatile liquidity conditions coupled with the external pressures have pushed the short-term rates higher by 5-10 basis points than in the early week of December.Experts say that the volatile liquidity conditions and seasonally strong credit season will keep funding conditions for banks elevated in the foreseeable future. Thus, the pressure on deposit rates is likely to stay elevated, though the rates have broadly peaked, they say."Deposits have remained prominent in FY25 as banks have intensified efforts to strengthen their liability franchise and have offered higher term deposit rates," said Sanjay Agarwal, senior director at CARE Ratings. "The banks are additionally obtaining funds through certificates of deposit, albeit at a comparatively higher expense."
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