Heavy pressure on small banks to increase deposit rates to generate liquidity

Mumbai: As a result of the increase in credit demand and the pull of liquidity on the other hand, the country's banking sector, especially the small banks, is under pressure to increase the interest rates to get deposits.

At present, it is seen that the fixed deposit (FD) rates of many banks have come to the pre-Corona level. Ujjivan Small Finance Bank has announced an increase in deposit rates up to 8.75 percent.

Earlier, Jana Small Finance Bank also had to announce interest of up to 8.50 percent to senior citizens on FD.

After a period of six to seven years, interest rates on FDs have come back to eight to nine percent, banking circles said.

Not only is the country's banking sector experiencing liquidity crunch, credit growth is higher than deposit growth. In the fortnight ended November 4, deposit growth stood at 8 percent year-on-year while credit growth stood at 16.81 percent. Thus credit growth is increasing twice as compared to deposits.

In such a situation banks are having to struggle to get deposits. The circles further said that banks are under pressure to increase interest rates to get more deposits. India's banking sector has recently witnessed the highest growth in lending to domestic companies in the last eight years.