Kotak said that the top banks are increasing the bulk deposit of one year at around 8%, which translates a marginal deposit of more than 9% after factoring in CRR, SLR, deposit insurance and priority sector borrowings – except for operating expenses.
He said, “Low-cost retail deposits (Casa non-vulcles) shows mute growth throughout the system. Nevertheless, banks are issuing home loans at 8.5% floating rate. Borrow at 9% and lend at 8.5%! Negatives are spread 0.5% and the repo rates are likely to fall,” they said in a post on X.
Kotak questioned how banks will manage operations and credit costs if the banks persist, warn how it could create a challenge for their business models. Most banks have their retail floating rate loans that are connected by repo rate and have to pass compulsorily by RBI at any rate of deduction.
Bond markets saw a rapid decline in yields as comments, before the decision of its monetary policy committee in early April, there was a possibility of another liquidity infusion by the RBI. The yield on 10 -year bond increased to 6.58% on Friday, below 6.6% on Thursday.
Between December and March, the RBI increased the sustainable liquidity of about Rs 6.2 lakh crore in the banking system through CRR cut, forex swap and open market bond purchase. Lack of liquidity reflected by bank borrows has shrunk to about Rs 20,000 crore. Continuous decrease prevents interest rate transmission to other banks.
Most economists say that a fair rate cut transmission requires RBI to maintain liquidity in surplus at least 0.5% to 1.5% of the total bank deposits. Many banks have called for a more predetermined structure, some bond dealers expect RBI to move towards daily repo.
