A decrease in liquidity could make banks more competitive for deposits.

Analysts say banks will be compelled to compete harder to raise deposits . Deposit growth is weak at 9.5% YoY, a good 600 bps below loan growth, according to analysts .

MUMBAI: Analysts cautioned that the banks will be compelled to compete harder to raise deposits following a declining market balance and rising credit demand ahead of the festive season, causing the Reserve Bank of India to pump funds into the system.We believe the true problem is the gap between deposit growth and loan growth, as deposit growth is weak at 9.5% YoY, a good 600 bps below loan growth, according to Suresh Ganapathy, chief financials research at Macquarie Aktuelle statistics from the National Institute of Credit (NIC) indicate that people tend to hold a lot of cash during the holiday season, which means that banks have to rely on money markets to support the increasing demand for credit.However, lending rates have stalled at the beginning of the year, according to RBI research earlier this month.The overreliance on bulk deposits is detrimental to the overall financial stability of the economy, she said.Bankers agree that borrowing from the debt market to finance credit growth is just one of the ways, and after a while it isnt sustainable.According to a report by India Ratings, the average amount of CDs withdrawn by banks in the first quarter of FY23 has increased by 15 basis points, while the bank's bulk deposit rate increased by 75 bps to 6%, meaning that banks may have to increase deposit mobilization in the coming quarters.