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The Reserve Bank of India (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) has started its three-day monetary policy committee (MPC) meeting in Mumbai on Tuesday. The meeting will conclude on Thursday, when the RBI will announce its decisions on the <keyword id="20094323" type="General" weightage="100" keywordseo="repo-rate" source="keywords">repo rate</keyword> and other matters. The repo rate, which has been maintained at 6.5 per cent since it was last increased in February 2023, is widely expected by experts to remain unchanged for the ninth consecutive bi-monthly policy review. Experts highlight that <keyword id="19895000" type="General" weightage="20" keywordseo="inflation" source="keywords">inflation</keyword> in India remains above the RBI's target range, making it unlikely that the central bank will implement policy cuts until inflation reaches the target of 4 per cent. However, the expert added that the RBI may consider rate cuts in the October meeting. Banking expert Ashutosh Khajuria commented: "Monetary Policy Committee (MPC) may continue to hold the policy signalling Repo rate and wait for <keyword id="19979707" type="General" weightage="20" keywordseo="Consumer-Price-Inflation" source="keywords">Consumer Price Inflation</keyword> to decisively fall below 4 per cent, the target rate. For the present, the continuation of the current stance is widely expected. MPC in India may change the stance and rate action by the beginning of the second half of the year in their October meeting at the earliest." The experts also noted that while <keyword id="20196112" type="General" weightage="20" keywordseo="core-inflation" source="keywords">core inflation</keyword> has been contained and commodity prices, particularly metals, have dropped by 15-20 per cent from their 2024 peak, food inflation remains a concern and needs to be closely monitored to ensure stability in overall CPI numbers. The Managing Director of a major bank, who preferred not to be named, told ANI: "During the last policy meeting we could see some voting in favour of a <keyword id="19920203" type="General" weightage="20" keywordseo="rate-cut" source="keywords">rate cut</keyword>. At the same time, we could see The Reserve Bank of India's (RBI) Governor Shaktikanta Das on July 11 said it is too early to talk on the interest rate cut due to the uncertain economic environment and inflation remaining close to five per cent. Considering both, our expectation is that the rate cut cycle may start from the next meeting and no change in <keyword id="19950650" type="General" weightage="20" keywordseo="interest-rates" source="keywords">interest rates</keyword> this time." RBI Governor Shaktikanta Das had also emphasised in the last policy briefing that food inflation is still a concern and that the regulator is not in a hurry to make a decision on rate cuts. A recent report by the State Bank of India (SBI) also noted that Consumer Price Inflation in India is expected to remain around 5 per cent for the financial year 2024-25, except for the months of September and October.

Repo rate cut unlikely in ongoing MPC meeting, but RBI may change it during October policy review: Experts

Mumbai (Maharashtra) [India], April 5 (ANI): <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> Governor Shaktikanta Das will announce the outcome of the first <keyword id="6375120" type="General" weightage="20" keywordseo="Monetary-Policy-Committee" source="Orion">Monetary Policy Committee</keyword> (MPC) meeting of the financial year 2024-2025 on Friday. The central banking authority of India has kept the <keyword id="43352" type="General" weightage="20" keywordseo="repo-rate" source="Orion">repo rate</keyword> unchanged for the last six consecutive MPC meetings and according to experts it is likely to maintain the status quo on interest rates this time too. The repo rate, is the interest rate at which banks draw funds from <keyword id="30067" type="General" weightage="20" keywordseo="RBI" source="Orion">RBI</keyword> to overcome short-term liquidity mismatches. Monetary Policy Committee was constituted under the Reserve Bank of India Act, 1934. MPC is a six-member committee comprising three members from RBI including Governor Shaktikanta Das and three members appointed by the Central government. The two-day review meeting of the MPC that commenced on April 3 concludes today. The RBI had maintained the status quo on policy rates and stances in its last review, which was held in February 2024. The decision however was not unanimous and one member has recommended a rate cut of 25 basis points and policy change stand to neutral. Since the last policy, rating agencies have revised India's growth forecast upwards. <keyword id="7706673" type="General" weightage="20" keywordseo="Finance-Minister-Nirmala-Sitharaman" source="Orion">Finance Minister Nirmala Sitharaman</keyword>, recently said that India will grow over 8 per cent in FY24. Inflation has dropped and has remained under the range of comfort zone. Consumer Price Index inflation was 5.1 per cent in February 2024, up from over 5.5 per cent in December 2023. The core CPI inflation, excluding food and beverages, was at a low of 3.5 per cent in February 2024. However, food inflation at above 7 per cent was a concern, but with a recent cut in the prices of petrol, diesel and LPG, it is likely to further fall in March and may come below 5 per cent. Meanwhile, the India Meteorological Department's (IMD) recent announcement of above-normal temperatures during April-June may be a concern regarding rise in prices of vegetable, fruits and other perishable items. Also prices of rice, pulses have shown an upward trend which may be a concern for the MPC while taking a decision. However, softening prices of non-food items will give some relief to the committee. Generally, normal monsoons follow above normal temperatures, presuming that the average CPI inflation is likely to be in the RBI's comfort zone of 4-6 per cent in FY25. According to official data, retail inflation in India eased a tad in February to 5.09 per cent from 5.10 per cent the prior month, due to the deceleration of prices in all categories except food. Experts believe that the RBI is unlikely to change its policy stance before the August 2024 MPC review and any rate cut is unlikely before that. The US Fed has also recently indicated that it is not in a hurry to cut rates. All these suggest that the RBI, too, is unlikely to go for a rate cut before the October 2024 policy. The next MPC meetings of the RBI have been scheduled this year for June, August, October, December and February 2025.

RBI Monetary Policy Meeting: Central Bank likely to keep rates steady

Amid questions on the depleting <keyword id="20776807" type="General" weightage="100" keywordseo="loan-to-deposit-ratio" source="keywords">loan-to-deposit ratio</keyword> in <keyword id="19895091" type="General" weightage="20" keywordseo="Indian-banks" source="keywords">Indian banks</keyword>, a recent report by <keyword id="19896146" type="General" weightage="20" keywordseo="Motilal-Oswal" source="keywords" meta.keywordsubtype="org" meta.entityname="Motilal Oswal" meta.hostid="269" meta.entityid="Motilal Oswal">Motilal Oswal</keyword> suggests that the loan-to-deposit (LD) ratio is likely to subside on its own in the coming months. The debate on loan-to-deposit ratio (LD), particularly concerning sluggish <keyword id="19998084" type="General" weightage="20" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> and potential risks to <keyword id="20089808" type="General" weightage="20" keywordseo="financial-stability" source="keywords">financial stability</keyword> is raised by even the finance minister and the <keyword id="20151998" type="General" weightage="20" keywordseo="RBI-governor" source="keywords">RBI governor</keyword>. However, the report notes that on closer examination, the situation may not be as alarming as it seems. As of 9th August, 2024 the Indian <keyword id="19964544" type="General" weightage="20" keywordseo="banking-sector" source="keywords">banking sector</keyword>'s loan-to-deposit (LD) ratio stood at 77.2 %, which is slightly below its recent peak of 78.2 % on 22nd March 2024, and its all-time high of 78.8 % in September 2013. The report stated that typically a rising LD ratio is indicative of a tightness in the banking sector, potentially indicating overheating. A lower LD indicates that the bank is aggressive in its credit disbursement practises, which could be risky. It highlighted that an analysis of the sector's transactions with the Reserve Bank of India (RBI) through the liquidity adjustment facility (LAF), along with recent trends in the weighted average call rate (WACR), suggests that the current rise in the LD ratio does not indicate tightness, which is why there is no immediate cause of concern. In fact, the report added that the concern over weak deposit growth may be overstated. Historical data show that bank deposits grew at an average rate of 9.5 % during the pre-COVID period (January 2015 to February 2020) and 10.4 % in the post-COVID period (March 2020 to August 2024). Earlier, Finance Minister Nirmala Sitharaman also urged state-run banks to enhance deposit mobilization through attractive offers and focusing on Tier-2 and Tier-3 cities. Loan-to-deposit ratio pegs the total deposits received by the bank against the loans it has offered. It helps in understanding how liquid the bank is. The loan-to-deposit ratio (LDR) is a financial metric that compares a bank's total loans to its total deposits. It's used to assess a bank's liquidity and credit risk, and to inform lending and deposit-taking decisions The report said while the exact measures are unclear, the deposit growth could potentially be increased by making other asset classes less attractive through taxation or interest rates, or by boosting fiscal spending to increase net credit to the government. In its forecast, the report noted that private banks will witness a moderation in their <keyword id="19998083" type="General" weightage="20" keywordseo="credit-growth" source="keywords">credit growth</keyword>, while public sector banks will maintain a healthy credit growth rate. "Our analysis suggests that deposit growth could be raised by either making other asset classes unattractive (through taxation and/or interest rate) or increasing the growth in net credit to the government by pushing fiscal spending higher" the report added. Alternatively, policymakers might consider curtailing loan growth to lower the LD ratio. However, this could slow deposit growth, particularly if corporate credit growth remains weak. Encouraging savers to shift investments from other assets to bank deposits could also be an option, but this carries risks of overreach and potential damage to economic confidence. Das had also flagged the excessive growth, or froth developing in the personal loan space. Notably, while credit growth in unsecured personal loans like credit cards continues to decline, it remains elevated at 23.3% as of June 2024. However, this is a significant reduction from 34.2% witnessed in November 2023. As fiscal spending increases, bank credit to the government is likely to grow, which should elevate deposits and broad money supply. The report said "However, the extent of foreign capital inflows and the RBI's policy for managing these inflows remain uncertain". Last month, RBI governor Shaktikanta Das had also addressed this issue in the 50th meeting of MPC (Monetary Policy Committee). Per him, deposit mobilisation has been lagging credit growth for some time now. This may potentially expose the system to structural liquidity issues. "While there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies. Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to capital markets and other financial intermediaries", Das said. Per him, while bank deposits continue to remain dominant as a percentage of financial assets owned by households, their share has been declining consistently, since households are now increasingly allocating their savings to mutual funds, insurance funds, pension funds and other avenues.

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

Mumbai: The Reserve Bank is unlikely to cut the benchmark <keyword id="20071327" type="General" weightage="20" keywordseo="interest-rate" source="keywords">interest rate</keyword> in its forthcoming bi-monthly monetary policy review later in the week as <keyword id="19999652" type="General" weightage="20" keywordseo="retail-inflation" source="keywords">retail inflation</keyword> is still a cause of concern, and there is a possibility of the Middle East crisis deteriorating further, impacting crude oil and commodity prices, say experts. Earlier this month, the government reconstituted the Reserve Bank's rate-setting panel -- <keyword id="19913109" type="General" weightage="20" keywordseo="Monetary-Policy-Committee" source="keywords">Monetary Policy Committee</keyword> (MPC). The reconstituted panel, with three newly appointed external members, will commence its maiden meeting on Monday. MPC Chairman RBI Governor Shaktikanta Das will reveal the outcome of the three-day discussion on Wednesday (October 9). The <keyword id="19899810" type="General" weightage="100" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (RBI) has kept the repo or short-term lending rate unchanged at 6.5 per cent since February 2023, and experts think some easing could only be possible in December. The government has tasked the central bank to ensure that Consumer Price Index (CPI) based retail inflation remains at 4 per cent with a margin of 2 per cent on either side. In the current context, experts feel that the RBI may not follow the US Federal Reserve, which lowered the benchmark rates by 50 basis points, and the central banks of some developed nations, which have reduced the interest rates. "We do not expect any change in the <keyword id="20094323" type="General" weightage="20" keywordseo="repo-rate" source="keywords">repo rate</keyword> or stance by MPC. The reason is that inflation for September and October will be above 5 per cent, and the present low inflation is due to the base effect. Besides, core inflation is inching upwards," said Madan Sabnavis, Chief Economist, Bank of Baroda. Further, the recent Iran-Israel imbroglio can intensify, and there is uncertainty here, he said. "Hence, the status quo is the most likely option even for new members. Inflation forecast may be lowered by 10-20 bps and no change in GDP forecast likely," said Sabnavis. The central bank last hiked the repo rate to 6.5 per cent in February 2023 and since then, it has held the rate at the same level. Icra Chief Economist Aditi Nayar said that given the undershooting in the initial first quarter GDP growth relative to the MPC's forecast and the likely sizeable undershooting in the second quarter CPI inflation print as well, "we believe a stance change to neutral may be appropriate in the October 2024 policy review". This could be followed by a shallow rate-cutting cycle of 25 bps each in December 2024 and February 2025, she added. "The abundant monsoon offers some insurance for crop inflation. The impact of global political developments and geopolitical uncertainty on the growth inflation dynamics remains a risk," Nayar added. An HSBC report said three developments stand out -- softer growth numbers have trickled in recently, inflation has been falling, and the external environment has moved from rate hikes to cuts. "We believe the RBI doesn't gain from waiting any longer. We think it will change its stance from a hawkish 'withdrawal of accommodation' to 'neutral' in the upcoming 9 October policy meeting, followed by repo rate cuts of 25 bps each in the December and February meetings, taking the repo rate to 6 per cent," the report said. The RBI kept the repo rate unchanged at 6.5 per cent in its August bi-monthly review amid risks from higher food inflation. This was the ninth consecutive MPC meeting, which decided to maintain the status quo on the rate front. Pradeep Aggarwal, founder and chairman, Signature Global (India) Limited, said while the real estate industry, developer community, and homebuyers are hoping for an interest rate cut in the upcoming monetary policy review, the RBI is likely to hold on to the interest rate cuts for the tenth consecutive time. "The apex bank still seems uncomfortable with the overall retail inflation scenario, particularly food inflation. As such, it is expected to maintain the status quo. The recent interest rate cut by the US Federal Reserve has ignited similar hopes even in India, but the domestic scenario is very different," he added. SBM Bank India Head Treasury Mandar Pitale believed that the MPC has persistently advocated a restrictive policy until inflation aligns durably towards the 4 per cent target. "With the unfavourable base effect taking the next couple of CPI prints near 5 per cent plus or minus, it will pose a major challenge for MPC to start easing from the October meeting," Pitale said, adding that the MPC is also expected to deliberate upon the global factors like growth-inflation behaviour in developed economies. The government has appointed Ram Singh, Saugata Bhattacharya, and Nagesh Kumar as external members of the MPC. They have replaced Ashima Goyal, Shashanka Bhide, and Jayanth R Varma. Apart from the Governor, the other internal members are the RBI Deputy Governor in charge of monetary policy Michael Debabrata Patra and the Executive Director monetary policy department of RBI Rajiv Ranjan. In an off-cycle meeting in May 2022, the MPC raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in the subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

Status-quo on interest rate likely, say experts ahead of RBI's policy review

<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

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Repo rate cut unlikely in ongoing MPC meeting, but RBI may change it during October policy review: Experts

ANI

RBI Monetary Policy Meeting: Central Bank likely to keep rates steady

ANI

Loan-to-deposit ratio will subside on its own in coming months, notes Motilal Oswal report

Ira Alok Puranik

Status-quo on interest rate likely, say experts ahead of RBI's policy review

PTI

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

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