Indian lenders asked the central bank to relax a number of liquidity rules to allow them unlock more funds for growth, according to people familiar with the matter, as demand for loans grows faster than deposits.
Lenders are seeking permission to free up some of the cash they have to park with the Reserve Bank of India for short-term financial stress requirements, the people said, asking not to be identified as the discussions are private. Meetings between the RBI and several banks took place over the past two weeks, they said.
The talks underscore the challenges Indian lenders face sustaining growing demand for credit in the world’s fastest-growing major economy as households use savings to buy stocks, depleting banks’ traditional source of funds. Allowing a larger portion of so-called cash-reserve ratio balances to count toward liquidity coverage ratio requirements will free up more funds for banks and help bring down borrowing costs.
Lenders also requested the RBI consider an early rollout of revised liquidity rules that allow them to hold fewer government bonds, something that also frees up more cash for lending, the people said. Those new rules are set to come into effect from April 1.
They also want the RBI to lower the minimum maturity of infrastructure bonds from seven years, which would allow them to raise more funds through these instruments, the people added.
A spokesperson for the RBI didn’t respond to an email seeking comment.
Bank deposits grew 10.6% from a year earlier as of Jan. 15, trailing credit growth of 13.1%, according to latest central bank data. Rates on three-month certificates of deposits used by banks to raise short-term funds were at 6.98% on Wednesday, far exceeding yields on similar-maturity government treasury bills.
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