Calcutta, March 7: The RBI notification limiting inter-bank borrowings is likely to spark a deposit war among banks. Analysts said with the RBI choking a major source for credit, banks will increasingly resort to enticing depositors with high rates of interest.

To check the unprecedented growth in credit over the last couple of years, the RBI has been continously ratcheting up the repo rates and the cash reserve ratios of banks. This raises the cost of funds and forces the banks to up interest rates, which puts a check on credit growth.

Though banks raised lending rates, they also tapped the inter-bank and call money market for short-term funds to support their burgeoning lending activities.

Inter-bank borrowings soared to Rs 70,943.25 crore as on February 16 last from Rs 56,992.57 crore on February 17 last year.

Banks’ borrowings from the call/notice money market more than doubled to Rs 21,371.69 crore.

“This is a risk management measure by the RBI in regards to the liabilities (read, deposits) of commercial banks and is a signal to commercial banks to focus more on mobilising deposits from the public if they want to fund their lending growth,” said an official of IDBI. “Following the RBI directive, banks will now strive more to raise deposits and this may led to further rise in deposit rates,” he added.

In July last year, the RBI capped scheduled commercial banks’ borrowings from the call money market at a fortnightly average of 100 per cent of the borrower bank’s tier I and tier II capital.