Increased liquidity in the banking system can force banks to slash interest rates, even as Reserve bank of India (RBI) has so far denied any plan to cut rates due to high inflation rate.

Ashutosh Khajuria, treasury head of federal bank, said that banks were sitting on excess funds of around Rs 4 lakh crore via excess government bonds.

Khajuria added that there was enough capability for banks to raise funds via other sources.

Speaking on the topic, he also said, "Many banks are trying to move out of government bonds and get into alternative sources. Going by this trend, banks may continue to look at retail products even after the festive season is over."

On Friday, banks deposited Rs 20,230 crore with the RBI's reverse repo window. It is the highest figure since May last year. A day earlier on Thursday, the figure was just Rs 6,850 crore.

On September 6, bank borrowing from the RBI slipped to Rs 2,120 crore -the lowest level in the current financial year.

Banks on Friday voted for another cut in the cash reserve ratio (CRR) - the part of deposits they must keep with the central bank. The central bank will announce its decision on a CRR cut in its half-yearly monetary policy review, which is due on October 30. In September, RBI had cut CRR by 25 basis points to 4.50 per cent; liberating Rs 17,000 crore into the country's banking system.