A taste for markets.

"Bank borrowing through market instruments has climbed to its highest levels," as "Data the Reserve Bank (RBI) publishes on a fortnightly basis showed that as of July 26, bank's borrowings were at Rs 9.32 trillion, 20% higher than the borrowing figure on April 5." ET. "While banks have been struggling to attract deposits, customers have been borrowing heavily to buy homes and for other purposes." "As on 28 June, bank deposits had grown 11.1% year-on-year, lagging credit growth of 17.4%." Mint. "Loan-to-deposit or credit-deposit ratio indicates how much of a bank's deposit base is utilized for loans. This was at 80% in FY24, at its highest since 2005, when this ratio became available." Since the RBI cannot dictate the rate of interest on deposits, there is not much it can do. pressreader. "Indian banks are facing a daunting dilemma as urban savers increasingly flock to higher-yielding instruments like mutual funds and stocks, undermining banks' traditional advantage of low cost deposits." "Deposit growth is crucial for banks as it provides a stable and low-cost source of funds, essential for financing loans and maintaining liquidity. High deposit levels enable banks to offer competitive interest rates on loans, support their operational needs, and meet regulatory requirements." ET. In other words, when lots of people save their money in banks, they get a lower rate of interest, which allows banks to lend at comparatively lower rates and make handsome profits. So, where are people investing? "According to the Association of Mutual Funds in India (AMFI), the monthly SIP (Systematic Investment Plan) contribution in July stood at Rs 233.32 billion against Rs 212.62 billion in June." "The number of SIP accounts stood at the highest ever at 9,33,96,174 in July," the total assets under management of SIP was Rs 13.09 trillion, "The Mutual Fund folios were at an all-time high at 19,84,06,294 and "The average assets under management (AAUM) for July 2024 was recorded at Rs 64.70 trillion." ET. On 08 August, "RBI Governor Shaktikanta Das...once again flagged the issue of rising retail money finding its way into alternative investment routes and said it could pose structural issues for Indian banks." ET. That is disingenuous and an attempt to evade his own responsibility. The RBI stubbornly held its interest rate 11 times at 4% over 24 months, from May 2020 to May 2022 (NDTV) when consumer price index (CPI) inflation was averaging over 6%, reaching a high of 7.8% in April 2022 (RI). This imposed a severe financial repression on people as they were getting a negative return of at least -2.5% on their savings and they started looking for alternative routes of investment to protect themselves from the RBI's onslaught. The RBI increased its repo rate by 40 basis point in an emergency meeting of the Monetary Policy Committee (MPC) on 2-4 May (ET), panicked by a possible jump in US interest rate by the Federal Reserve which was meeting the next day. The Fed increased its Funds rate by 50 basis points on 05 May 2022. Forbes. Had the RBI not acted in haste the rupee may have fallen precipitously against the dollar and inflation may have become out of control. People have got a taste of the stock market as the BSE Sensex has rocketed from below 30,000 in 2020 to over 80,000 today (tradingeconomics.com). No use trying to blame commercial banks. We are not fooled.