Indian Banking System: Recently there was a cash crunch in the banks. This was the first time after May 2019 that banks had a cash crunch, as of November 2021, banks had more than Rs 8 lakh crore surplus cash. Whereas on September 20, 2022, the opposite situation arose with the banks and they faced a cash crunch of Rs 21,873 crore. In fact, due to increase in demand for loans, advance tax payment by corporates and banks not increasing deposit rates, the cash crunch has arisen.
What will be the effect on the bank customer
Due to the cash crunch, there has been an increase in the bond yield of the government. On August 20, 2022, the yield on 10-year government bonds was getting 7.18 percent, which has increased to 7.23 percent on September 21. This means banks may increase deposit rates in the coming days to woo depositors. After increasing the repo rate by RBI, banks have increased the interest rates on deposits. But it has not increased in proportion to the rate at which debt has become costlier. Now banks will try to woo the depositors by increasing the interest rates on FD (Fixed Deposits) RD (Recurring Deposits), which will bring cash to the banks.
Interest rates will also increase on small savings schemes
On September 30, 2022, the Finance Ministry can announce to increase interest rates on savings schemes like PPF, Sukanya Samriddhi Yojana, Kisan Vikas Patra and NSC. In fact, there has been no change in the interest rates available on these schemes for more than two years, while banks have increased the rates on FDs during this period. In order to attract investment in these schemes, the government can increase the interest rates. So that more and more people invest in these savings schemes.
What happens in the case of cash in banks
The cash that banks keep with them to meet short-term needs is called cash in the banking system. If the bank takes cash from RBI under the Liquidity Adjustment Facility, then it means that there is a shortage of cash in the banks. If the bank does the work of lending to the RBI, then it is believed that the banks have surplus cash. Through the Liquidity Adjustment Facility, RBI works to infuse or absorb cash in the banking system.
Why did the cash crisis arise?
If the economy continues to gain momentum after the Corona period, the demand for loans from banks has increased. Corporate has to deposit advance tax on the last 15th of every quarter. The same has happened around September 15, so this crisis has also arisen due to the intervention of the RBI to stop the weakness in the rupee against the dollar and the deposit rates have not increased.
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