In an exclusive interview to NDTV Profit on Tuesday, Reserve Bank of India Governor Shaktikanta Das said banks need to be watchful of this persisting gap between credit and deposit growth. He added that as of now, this is not a problem, but it could gradually turn out to be a big liquidity issue if remedial action is not taken in advance.
Banks, in his opinion, should be sensitive to the changing investment habits of the young, aspiring Indians. While the trend away from traditional deposits into alternative instruments is not immediately threatening, it could lead to future structural liquidity problems. In this context, innovation in deposit products and leveraging the extensive branch network would become imperative for the banks to remain competitive.
He also mentioned that credit and deposit growth must go hand in hand. Another positive is higher usage of the infrastructure bond route by banks to shore up their funding with some attractive rates. These instruments, carrying minimum seven-year maturity, are also eligible for some regulatory dispensations and are being used by banks to supplement their balance sheets for funding long-term projects in the infrastructure sector.
Loans have risen 13.7 per cent as of July 26 this financial year against a rise of 10.6 per cent in deposits, according to RBI data. The difference is the challenge, considering credit growth has been fuelled by technology platforms but deposit mobilisation remains vastly dependent on physical channels.
At a review meeting on Monday, Finance Minister Nirmala Sitharaman asked public sector banks' heads to push deposit growth so that it stays aligned with the faster rate of credit growth. She underlined the fact that the deposit growth rate was 3-4 per cent below the credit growth rate, which would create an asset-liability mismatch within the banking sector.
After a recent post-Budget meeting with the Reserve Bank of India's Central Board of Directors, the Minister of Finance asked banks to focus on core business activities such as deposit mobilization and lending. She stated that although investors are being wooed by stock markets, banks have to evolve new strategies for mobilizing more deposits for economic growth and employment generation.
She also said that this can happen not by relying solely on large deposits, but using the vast branch network of banks to mop up small deposits that come in over a period but play an important role for the banking system. CASA, low-cost current and savings accounts, have fallen from 43 per cent of total deposits last year to 39 per cent this year, according to RBI data. Das had earlier emphasized that in today's situation, it is very necessary that banks lay stress on CASA deposits in order to manage their cost profitably, rather than relying on ever-increasing bulk deposits that still remain very volatile.
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