• UGI USER
  • Jul 20, 2024
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“RBI WARNS: SLOWER DEPOSITS MAY CREATE LIQUIDITY ISSUES”

Why in the news?

RBI Governor warns that slower deposit growth relative to credit could lead to structural liquidity issues and increased financial risks.

About Bank Credit:

  • Source of Funds: Banks use client deposits and investments (e.g., CDs) to lend money.
  • Certificates of Deposit (CDs): Offer higher interest rates for locking in funds for a set period.
  • Bank Credit: Total funds advanced to borrowers, involving loan agreements.

Bank Credit in India:

  • Types:
    • Food Credit: Lending to Food Corporation of India (FCI) for foodgrains.
    • Non-Food Credit: Major portion, includes credit to agriculture, industry, services, and personal loans.
  • Data Collection: Monthly by RBI.
 source:researchgate
About Bank Deposits:

  • Definition: Money placed in banks for safekeeping.
  • Types: Includes savings accounts, current accounts, and money market accounts.
  • Withdrawal Rights: Account holders can withdraw funds per the account’s terms and conditions.

Bank Deposits in India:

Current Account:

  • Lower restrictions on withdrawals and transactions compared to savings accounts.
  • Known as a demand deposit account, ideal for business transactions.
  • Offers overdraft facilities, allowing withdrawals beyond account balance.

Savings Accounts:

  • Liquidity: High
  • Limits: Cash withdrawal and transaction limits
  • Interest Rate: Slightly above inflation, not ideal for investment

Recurring Deposits:

  • Deposits: Fixed monthly sum
  • Withdrawals: No premature withdrawals; penalty for early closure

Fixed Deposits:

  • Providers: Banks, financial institutes, NBFCs
  • Returns: Guaranteed, higher than savings accounts
  • Tenures: 7 days to 10 years

Associated Article

https://universalinstitutions.com/rbi-and-monetary-policy-in-india/