As the economy is fast gearing and credit disbursal is picking up, banks will have no option but ot mobilize deposits from the public and offer higher interest rates.

As loan portfolio is seeing a rise with the banks, deposit rates are likely to trend higher in already increasing interest rate regime. In accordance with the latest data released by the Reserve Bank of India, fresh credit to deposit is 122% and the same ratio stood at 90% in the year ago period. The ratio can be understood as for every Rs. 100 collected as bank deposits, an amount being lent is Rs. 122, which is drawn from bank's government bond holdings.

And to meet the demand for credit, bankers will need to up the share of deposits with them. Fresh investments to deposit ratio has come down to 31% from more than 100% a year ago.

Banks nowadays at a time when deposit rate is growing at a comparably slower rate of 9% in comparison to credit offtake at 15%, are relying on borrowed funds. "The increasing wedge in the credit-deposit growth... is leading to an increase in the market rates for the wholesale deposit even as moderation in the G-sec yields has happened last month," said B Prasanna, group executive and head of markets, ICICI Bank.

So, while many public and private lenders have been seen increasing deposit rates, it is reflected in increased lending MCLR and not just it, but spread over MCLR for different loan categories such that overall there is an increase in rate in the banking system.

Goodreturns.in