The Mahila Samman Saving Certificate, a special deposit program for women with an annual interest rate of 7.5% on deposits for two years, was recently announced by Finance Minister Nirmala Sitharaman. In order to attract depositors, this move has put pressure on banks to raise interest rates on their fixed deposit schemes.
Banks may be forced to raise interest rates in order to maintain their cash flow in light of the recent cash crunch they are experiencing in order to meet the growing demand for credit.
In 2022, banks issued substantial loans, resulting in a credit growth rate of 14.9 percent. On the other hand, deposit growth only increased by 9.2%. Banks will have to raise interest rates on deposits if they want to keep up with the demand for credit or else they run the risk of running out of cash.
Although most banks still offer interest rates lower than the Mahila Samman Saving Certificate’s 7.5%, SBI, ICICI Bank, RBL Bank, Axis Bank, and IDFC First Bank have already decided to raise deposit interest rates.
In addition, the Finance Minister has increased the investment limit in the senior citizens’ deposit scheme from Rs 15 lakh to Rs 30 lakh, with an annual interest rate of 8%. This move has increased the pressure on banks to increase interest rates and make deposit programs more appealing in order to compete.
On May 4, 2022, the RBI began raising the repo rate, which banks will increase by 2.25 percent in five stages. Customers were made to bear the brunt of this increase; However, there was no corresponding increase in deposit rates.
The banking industry is currently experiencing a cash crunch as a result of this imbalance between credit growth and deposit growth.
