Indian lenders have asked the Reserve Bank of India (RBI) to relax several liquidity norms to help free up funds for lending, as loan demand continues to grow faster than deposits, according to people familiar with the matter.
Banks have sought permission to unlock part of the cash they are required to park with the RBI to meet short-term stress requirements. They argue that easing these norms would allow them to deploy more funds for lending and support economic growth. Discussions between the central bank and multiple lenders have taken place over the past two weeks, the sources said, requesting anonymity as the talks are private.
The discussions highlight the growing challenge for banks in sustaining credit growth in the world’s fastest-growing major economy. Household savings are increasingly being diverted into equity markets, reducing the flow of deposits, which are a key funding source for banks. Lenders believe that allowing a larger share of cash reserve ratio balances to be counted towards liquidity coverage ratio requirements would ease funding pressure and help lower borrowing costs.
Banks have also urged the RBI to consider an early implementation of revised liquidity rules that would allow them to hold fewer government bonds. These changes, scheduled to take effect from April 1, would also help release additional funds for lending.
In addition, lenders want the central bank to reduce the minimum maturity period of infrastructure bonds from the current seven years. A shorter maturity, they say, would make it easier to raise funds through these bonds.
The RBI did not respond to queries seeking comment.
Latest central bank data shows that bank deposits grew 10.6 per cent year-on-year as of January 15, lagging credit growth of 13.1 per cent. Meanwhile, rates on three-month certificates of deposit, a key short-term funding instrument for banks, stood at 6.98 per cent on Wednesday, significantly higher than yields on government treasury bills of similar maturity.