Behind closed-door discussions over the past 2 weeks, Indian banks have asked the central bank to relax several liquidity rules to help release more funds for lending, as loan demand continues to grow faster than deposits, according to people familiar with the matter.
Lenders have sought permission to free up a portion of the cash they are required to park with the Reserve Bank of India to meet short-term financial stress norms. The people said these discussions are private and requested anonymity. Multiple meetings between the RBI and several banks have taken place during this period.
The talks reflect mounting pressure on banks in the world’s fastest-growing major economy, where credit demand remains strong but deposit growth is lagging. Household savings are increasingly being diverted into stock markets, reducing a key source of bank funding. Bankers believe that allowing a larger share of cash-reserve ratio balances to be counted toward liquidity coverage ratio requirements would unlock funds, improve liquidity, and help lower borrowing costs.
Banks have also asked the RBI to consider an early rollout of revised liquidity rules that would allow them to hold fewer government bonds. Such a move would further free up cash for lending. These revised rules are currently scheduled to take effect from April 1.
In addition, lenders have requested the RBI to lower the minimum maturity period for infrastructure bonds from 7 years. This change would make it easier for banks to raise funds through these instruments, the people said.
A spokesperson for the RBI did not respond to an email seeking comment.
Latest central bank data shows that bank deposits grew 10.6% year-on-year as of January 15, compared with credit growth of 13.1%. Meanwhile, rates on 3-month certificates of deposit used by banks to raise short-term funds stood at 6.98% on Wednesday. These rates were significantly higher than yields on government treasury bills of similar maturity.
The widening gap between loan growth and deposit inflows highlights the liquidity challenges facing Indian lenders as they seek to sustain credit expansion.
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