RBI Governor Shaktikanta Das on Friday said banks cannot perennially rely on the central bank’s money to support credit offtake and they needed to mobilise more deposits to aid credit growth.
He said banks had already started to pass on the increase in repo rates to their depositors and that the trend was expected to continue.
“When there is a credit offtake, banks can sustain and support that credit offtake only if they have higher deposits. They cannot be relying on the central bank money on a perennial basis to support credit offtake … they have to mobilise their own resources and funds,” Mr. Das told reporters during the post-policy meeting.
The six-member Monetary Policy Committee (MPC) on Friday raised the repo rate by 50 basis points to 5.4% and also decided to remain focussed on withdrawal of accommodation to ensure that inflation remained within the target going forward, while supporting growth.
This is the third increase in a row by the RBI since May this year in its fight against inflation which has been hovering above the central bank’s tolerance band of 4-6%. The consumer price index (CPI)-based inflation stood at 7.01% in June.
In May, RBI raised the repo rate by 40 basis points and followed it with another 50-basis point increase in June.
Following these rate increases, many banks have increased their deposit rates to some extent.
RBI Deputy Governor Michael Patra said there had been a very aggressive deposit mobilisation starting with the bulk deposits.
“We expect deposit mobilisation to catch up with the credit very quickly,” Patra said.
In the fortnight ended July 15, bank credit grew 12.89% and deposits by 8.35%.
Mr. Das said the most likely scenario is that the impact of the rate hike would be passed on by banks for deposits.
“Already the trend has started. Quite a number of banks have increased their deposit rates in the recent weeks and that trend will continue,” he said.
On the liquidity scenario, the Governor said the RBI would do two-way operations for dealing with the prevailing liquidity situation.
He said last month there was a sudden squeeze on liquidity for about three to four days because of very high GST and other tax collections, and so, the RBI conducted a fine-tuning operation of injecting repo of three days’ maturity.
“Our effort will be to ensure that there is adequate liquidity,” he added.
When asked whether there was a concern about higher amounts on bad loans being written off by banks, compared with recoveries and upgradation, Deputy Governor M.K. Jain clarified that these were technical and prudential write-offs without forgoing the right to recovery.
“All these loans are fully provided for and this reflects prudence and better position of the balance sheet,” Mr. Jain said.
He said in the last two-and-a-half years, there is a declining trend as far as write-offs are concerned and there is a rising trend of upgradation of non-performing loans.