Why are banks scrambling for deposits?

Banks have increased their deposit rates in recent days amid four consecutive repo rate hikes by the Reserve Bank of India (RBI). Banks are scrambling to mobilise deposits at a faster pace, with Canara Bank starting door-to-door campaigns to sell its fixed deposit scheme. The primary reason for this is tightening banking system liquidity due to heavy currency leakage and heightened spending on account of festive season. The RBI’s dollar sales in the foreign exchange market to prevent the rupee’s depreciation have also tightened liquidity. The mismatch between credit growth and deposit growth has forced most banks to offer high rates on deposits and increase promotional activities for the same.