NEW DELHI: Addressing the media after the board meeting of the Reserve Bank of India, Finance Minister Nirmala Sitharaman asked banks to come up with innovative and attractive schemes to boost deposit mobilisation.
It is worth noting that deposit mobilisation has been lagging credit growth for some time now. The mismatch can potentially expose the system to structural liquidity issues.
“Deposits and lending are two wheels of a cart and there is a mismatch as deposit is moving slowly compared to credit growth. So, in order to overcome the mismatch between deposits and lending, banks have to come up with ‘innovative and attractive’ deposit schemes to mobilise funds,” said Finance Minister Nirmala Sitharaman.
In a BFSI summit in Mumbai last month, Reserve Bank of India (RBI) Governor Shaktikanta Das also flagged concerns on the widening gap between credit and deposit growth with household savings increasingly moving away from traditional deposits, urging banks to adopt new strategies to attract deposits and manage liquidity risks effectively.
Sitharaman stressed on the needs for banks to focus on ‘core banking’. “The government and RBI have been telling banks continuously to focus on core banking, including deposit collection and lending money,” she said.
RBI Governor Shaktikanta Das said banks had the autonomy to set their own interest rates as both deposit and lending rates were deregulated. “Banks are free to decide rates,” he added.
He raised concerns over deposit-lending mismatch in the banking sector. Addressing the press conference along with the Finance Minister, he said the banks were increasingly relying on short-term, non-retail deposits and other financial instruments to meet rising credit demands.
The RBI Governor cautioned that this reliance could lead to potential liquidity problems within the banking system. He also stressed the banks should focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network.