Interest Rate “Post Demonetization” (series post demonetization)
ICICI and HDFC cut their deposit rate by 0.25%.
Canara Bank, ICICI, HDFC cut their Fixed Deposit rates by up to 1% ?
It is because banks had high liquidity at this time and we can determine the level of liquidity by this figure i.e. transaction value in F.Y 15-16 was 3,97,040 but in the F.Y 16-17 6,57,785 almost double than the previous year and the mainly contribution was post demonetization so banks had to bear the cost of handling those cash so if they could continue with their usual interest on deposit rates it would lead to loss making for them, on the other hand banks usually used to take the deposit and invest it somewhere else in form of loan and other investment aspects. But this time banks were unable to invest the deposited money to get the profit and in order to reduce the loss margin banks reduced interest on deposit rates
SBI cuts their interest of lending rates by 90 basis points for 3 years from 9.05% to 8.15%.
As we knew in the above statement that banks had low investments it was not the good gesture for banking and investment industry so to overcome this cons banks reduced interest on lending rates as well to promote the investment so client could at least come for the sake of low interest rates and banks will also get business and investment now the big question is why banks had low investment opportunity??
Because of the note ban step the citizens of the country had huge lack of cash as 84% of the currency was useless at that time so people stopped buying more goods and stuff and started giving priorities to necessary items such as basic foods, daily travelling expenses, household expenses only etc. apart from this expenses people stopped buying luxury goods and services and clothes and electronic items and so on now all the entrepreneurs and businessman was scared in order to grow their businesses they were dying to even sell their existing stocks available in the market. So as businessmen and industrialist were slowing down their business and production respectively they were not increasing their business and not taking any amount from banks and other institutions as investments.