Amidst liquidity tightening, a decadal high credit growth of over 18 per cent and with deposit growth falling way behind, a report by SBI has warned that banks are not adequately pricing their risks from both asset and liabilities.

Liquidity crunch is primarily because the Reserve Bank has been sucking out funds from the system as it fights to tame inflation which has been much above its band of 4 per cent for the past 10 months of the year.

This has prompted the RBI to frontload its inflation fight by increasing the policy rates by 190 basis points to pre-pandemic levels since the war on Ukraine began.

The average net durable liquidity injected into the banking system in April 2022 was Rs 8.3 lakh crore, which is nearly a third of that now at Rs 3 lakh crore.

The government has spent a large part of its cash balances in the Diwali week, and as a result the net LAF (liquidity adjust facility) in the system, which was hitherto negative, has improved of late.

Bonus payments by the government and the private sector also helped.