Indian banks may face a shortfall in deposits in the coming festive season. These banks may be forced to face stiff competition amid already cash crunch and rising debt.

During festivals, there is a sudden outflow of money from banks because a large number of customers make purchases during this period. Earlier this week, for the first time in 40 months, liquidity in the Indian banking system has contracted.

Apart from this, people also keep a lot of cash during this time. This will further reduce liquidity. L&T Financial Chief Economist Rupa Rege Nitsure said banks have been behind in raising deposit rates due to excess liquidity in the system. Therefore, banks will now have to increase the interest on deposits. Banks rely heavily on bulk deposits and this is bad for them. PLC/GT

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