Hello everyone, 

Welcome to the 83rd edition of The Pattern, a weekly where we dissect the latest rumblings from the world of banking, finance, economy, and technology. Let’s get started.

As RBI turns off the money tap, banks go mopping up deposits

The RBI Monetary Policy Committee (MPC) has been maintaining the status quo on the repo rate — an unchanged 6.5% — for the fourth time in a row. The MPC last raised this rate by 25 bps to 6.50% at its meeting in February 2023. 

Such attempts at cooling an overheated economy lead to rise in the cost of funds for banks. The conventional business approach is to raise interest rates at such times. But private banks seem to be defying conventional wisdom to cater to India’s unwavering demand for credit. 

Private banks are adopting multiple strategies to shore up deposits, and thereby reduce their cost of funds.

“While HDFC Bank is opening branches to net more depositors, Kotak is tapping its digital highway. Axis, which bought Citi's retail assets, is chasing salary accounts and IndusInd Bank is tapping the NRIs”,  said Jefferies .

Deposit growth lags behind credit growth

Although both deposits and credit have been on a growth streak, the gap between the two have been expanding during the year to 6% points at the peak. Given the liquidity shortage, all and sundry are offering super attractive rates for deposits. Such aggressive deposit pricing doesn't help matters, yet seems to be the preferred choice of Indian private banks. Case in point, HDFC expanded its branch network by 39% in two years. 

Reading list:

1. How can lenders respond at speed to interest rate risk?

2. Bank must refund money to customer for reported online fraud: Court

3. Credit bureaus must resolve complaints in 30 days or pay ₹100 a day: RBI

4. Rush for gold cash amid need for cold cash  

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on Twitter  here  and follow  FinBox on LinkedIn  to never miss any updates.  

Cheers,

Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.