Liquidity tightens: Bank borrowings exceed Rs 1 lakh cr

SBI hikes short term bulk deposit rates by 100-175 bps

With the liquidity deficit in the banking system exceeding Rs 1 lakh crore, public sector banks have started raising short-term bulk deposit rates.

Data released by the central bank on Monday showed banks had borrowed about Rs 1.12 lakh crore from the Reserve Bank of India’s twin facilities—liquidity adjustment facility (LAF) and marginal standing facility (MSF) —on Friday. On Thursday, the borrowing stood at Rs 1.07 lakh crore.

While banks can borrow under LAF at the repo rate (7.25 per cent), the MSF rate is 10.25 per cent. On Friday, banks had borrowed about Rs 70,000 crore from the MSF window.

On July 15, the central bank had raised the MSF rate by 200 bps to 10.25 per cent to curb speculation in the foreign exchange market, which was exerting pressure on the rupee. Banks have started borrowing from the MSF window, as LAF borrowings have been capped at 0.5 per cent of banks’ net demand and time liabilities.

State Bank of India (SBI), the country’s largest lender, has raised short-term bulk deposit rates for up to a year by 100-175 bps. Now, the bank would offer nine per cent for seven-60 days and 8.25 per cent for 61 days a year. These deposits can be withdrawn after seven days without having to pay any penalty. The rise in bulk deposit rate would increase the bank’s cost of funds. All other deposit rates have been left unchanged.

The bank has, however, ruled out any immediate rise in lending rate. Currently, SBI’s base rate is 9.7 per cent, the lowest in India.

Last month, ICICI Bank had increased retail deposit rates 50-75 basis points for deposits maturing in 46-389 days. Later, the bank had raised the base rate by 25 basis points to 10 per cent.

HDFC Bank had raised its base rate by 20 basis points to 9.8 per cent.

While most private sector banks have raised deposit rates and base rates to protect margins, most public sector banks are yet to raise base rates. Analysts say this would put their net interest margins under pressure.