Bank deposits declined even as robust credit growth continued in the fortnight ended Sept 22nd

At a time when Banks are witnessing robust credit growth, the decline in deposits in the fortnight ended September 22^nd amid systemic liquidity tightness may be a little worrisome.

Advances of all scheduled banks rose by ₹1,01,244 crore in the reporting fortnight ended September 22^nd. However, their deposits dipped by ₹1,08,893 in the said period, as per RBI data.

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Madan Sabnavis, Chief Economist, Bank of Baroda, attributed the decline in deposits to certificate of deposits and bulk deposits maturing even as banks’ retail loans push continues.

On call money rates hovering at or over the marginal standing facility rate of 6.75 per cent over the last 10 days or so, he noted that there is liquidity squeeze in the banking system and the RBI may have to come up with liquidity enhancement measures such as open market operations (OMO).

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RBI may announce a calendar of OMO auctions to assuage liquidity concerns, Sabnavis said.

V Rama Chandra Reddy, Deputy General Manager (Treasury), Karur Vysya Bank, said with inflation being above the monetary policy committee’s upper tolerance level of six per cent, RBI may prefer to keep liquidity tight to reinforce its withdrawal of accommodation stance.