In an exclusive conversation with NDTV Profit on Tuesday, Reserve Bank of India Governor Shaktikanta Das has asked banks to keep a close watch on the current divergence between credit and deposit growth, which might blow up into a liquidity challenge.
He further advised banks to 'keep a hawk's eye' on this issue and warned that though there is no immediate problem, it could evolve into a structural liquidity issue if not addressed. He drew attention to the tracking of changes in the investment preference of young aspirational Indians shifting out of traditional deposits to other investment options—a trend that while manageable now could prove to be a problem in terms of future liquidity.
He said banks should innovate their deposit products to mitigate these risks and should use their countrywide branch networks. Mr. Das also expressed that care should be taken to strike a balance between credit and deposit growth. The positive development, he pointed out, was that banks are currently raising funds through infrastructure bonds at attractive rates, which support their balance sheets. These bonds, with a minimum maturity of seven years and certain regulatory benefits, are used to finance long-term infrastructure projects.
Compared to the similar period of last year, while loans increased by 13.7 % as of July 26 in the current financial year according to data from the RBI, deposit growth was lagging at 10.6 %. "Though credit growth has been rapid and is getting almost azized because of technological advances, deposit mobilization, which is still largely dependent on bricks and mortar, cannot keep pace with it," observed Das.
Sitharaman has asked public sector banks to step up deposit growth to match the credit growth at the review meeting on Monday. The minister expressed concern that deposit growth has been 3 to 4 per cent slower than credit growth for the past months, a situation that could further deteriorate into an asset-liability mismatch within the banking system.
In an interaction with the RBI's Central Board of Directors after the Budget, Sitharaman underscored that banks need to get back to their core business of deposit mobilisation and lending. She pointed out that adequate freedom has been given by the RBI to banks in terms of interest rates and also prodded them to design innovative deposit products which would increase funds available at their disposal for lending to accelerate growth and job creation.
She also brought out the fact that investors are moving towards the stock market and asked banks to design schemes so that more deposits come in. Banks, she said, should not only go after large deposits but also those small, steady deposits that may be incremental but are very important for the banking system.
According to RBI data, the share of low-cost current and savings accounts has slid from 43 percent of total deposits a year ago to 39 percent this year. Das had earlier said that banks need to focus on CASA deposits if the cost was to be lowered and thus, instead of focusing on bulk deposits which often get withdrawn at rapid speed,.
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