With 143% Liquidity Ratio, SBI Finds Giving Interest To Account Holders Difficult

by GoNews Desk 3 years ago Views 1831

With 143% Liquidity Ratio, SBI Finds Giving Intere
Economic uncertainty is widespread across India due to the Coronavirus pandemic.

The fear is such that people are afraid to spend money, and instead of withdrawing their deposits from banks, they are making more deposits.

The liquidity ratio in the country's largest bank, State Bank of India (SBI), has reached 143%, which means that the bank is either nervous of giving loans or people are not coming forward to borrow.

The Reserve Bank of India had instructed all banks to maintain a minimum of 100% liquidity coverage ratio (LCR).

Later, in order to resume the economic activities that were stalled due to the pandemic, this ratio was reduced to 80% so that the banks would be able to lend to more and more people.

But the SBI figures reveal that people are currently sitting on debt and do not want to get involved in any kind of EMI as there is a risk aversion amongst borrowers too.

SBI Chairman Rajnish Kumar recently said, 'Our bank has money, but there are no takers in the market'.

Meanwhile, there is a challenge of how the SBI, sitting on a deposit of Rs 2.5 lakh crore, will pay interests to account holders on such a huge amount.

Because the bank is not raising money out of the loans in the form of interest. Experts believe that if the situation remains the same for a long time, then it will be difficult to run the bank.

To overcome the high liquidity difficulty, banks are reducing deposit rates for both savings and the term deposits.

The SBI has also reduced its savings rate to a minimum of 2.7% for a year.

The situation is also reflected in the recent RBI report which said that despite the rise in income, people in rural areas are depositing more money in banks. That is, people are considering it better to leave their money in bank accounts instead of spending.

According to the RBI’s last quarter data, the annual credit growth in banks across rural areas in December 2019 was 12.8%, which increased to 15.5% in March 2020.

In banks across towns, this figure was increased from 11.4% to 12.3%. This means that there has been an increase in the pace of total deposits made in banks in towns and rural areas.

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