Banks saw copious deposit inflows of ₹420,960 crore in the fortnight ending November 25, RBI data show. This is thanks to the rush to deposit the high denomination currency notes, which became illegal tender with effect from November 9.

With the public having time until December 30 to deposit their old ₹500 and ₹1,000 notes, the banking system is expected to see further jump in deposits.

After December 30, the public can go to specified offices of the Reserve Bank of India up to March-end 2017 and deposit the notes after submitting a declaration form.

With deposits growing by leaps and bounds and credit demand in the economy muted, banks have started cutting deposit rates to protect their margins.

For instance, State Bank of India cut its rates on retail deposits (of less than ₹1 crore) in three maturity buckets by 15 basis points with effect from November 17.

SBI’s deposit rates are: 6.90 per cent (7.05 per cent earlier) for one year to 455 days; 6.95 per cent (7.10 per cent) for 456 days to less than two years; and 6.85 per cent (7 per cent) for two years to less than three years.

Now, the highest interest rate that India’s largest bank is offering is 7 per cent on deposits of 211 days to less than one year.

That the picture is not rosy on the assets side is underscored by the fact that the banking system’s loan book has come down by ₹64,233 crore in the reporting fortnight.

The combination of high deposit growth and tepid credit growth has led to banks investing heavily in Central and State government securities.

In the reporting fortnight, banks invested ₹3,46,795 crore in these securities.

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