Synopsis: Finance Minister Nirmala Sitharaman has urged banks to devise innovative and attractive schemes to mobilize deposits, addressing concerns over the slow pace of deposit growth compared to lending. She emphasized the need for banks to focus on their core business of deposit mobilization and lending to maintain a balanced financial ecosystem.
In a recent press conference following the Reserve Bank of India's (RBI) board meeting, Finance Minister Nirmala Sitharaman called on banks to introduce innovative and attractive schemes to boost deposit mobilization.
Sitharaman's remarks come at a time when the banking sector is grappling with a growing mismatch between deposits and lending, which she likened to "two wheels of a cart," stressing that the deposit wheel is moving too slowly.
Sitharaman highlighted the importance of banks returning to their core functions—mobilizing deposits and extending credit to those in need.
She emphasized that in order to bridge the gap between deposits and lending, banks must come up with creative strategies to attract more deposits from the public.
Her concerns were echoed by RBI Governor Shaktikanta Das, who pointed out the deregulated nature of interest rates and how banks often increase deposit rates to draw in more funds.
However, he cautioned that banks’ increasing reliance on short-term non-retail deposits and other liability instruments to meet rising credit demands could potentially lead to structural liquidity issues.
During the unveiling of the RBI's bi-monthly monetary policy earlier in the week, Governor Das also expressed concerns over the deposit-lending mismatch in the banking sector.
He noted that the growing reliance on short-term funding sources could pose risks to the stability of the banking system.
To mitigate these risks, Das advised banks to focus on mobilizing household financial savings through innovative products and services, fully utilizing their extensive branch networks.
In conclusion, the call to action from Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das underscores the need for banks to address the deposit-lending imbalance in the Indian banking sector.
By leveraging their branch networks and introducing innovative deposit schemes, banks can attract more household savings, thereby ensuring a stable and sustainable financial ecosystem.
As the banking sector navigates these challenges, the focus on innovation and core banking functions will be crucial in maintaining financial stability.
Disclaimer: The information provided in this article is based on public statements and available media reports. The views expressed by officials in this article reflect their individual opinions and do not necessarily represent the official stance of the institutions involved. Readers are encouraged to seek independent financial advice before making any decisions based on this information.
