Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday flagged concerns on the widening gap between credit and deposit growth with household savings increasingly moving away from traditional deposits.
He urged the banks to adopt new strategies to attract deposits and manage liquidity risks effectively.
Delivering a speech at the Financial Express Modern BFSI Summit in Mumbai, he said, “Deposit mobilisation has been lagging credit growth for some time now. This may potentially expose the system to structural liquidity issues.”
“While there could be a debate regarding ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies,” he added.
The Governor highlighted that households and consumers who traditionally leaned on banks for parking or investing their savings, were increasingly turning to capital markets and other financial intermediaries.
He said that while bank deposits continue to remain dominant as a percentage of financial assets owned by households, their share has been declining with households increasingly allocating their savings to mutual funds, insurance funds and pension funds.
“To be precise, households are increasingly turning to other avenues for deploying their savings instead of banks,” he said.
Governor Das also said that the Central Bank does not have any plan to allow business houses to promote banks at present.
Allowing corporate houses to promote banks exposes one to conflict of interest risks and related-party transactions, he said.
He also said that the monetary policy has to be “clearly and unambiguously” focused on inflation in an environment like the current one, where growth is steady.
Amid a debate around neutral rates, the Governor said theoretical and abstract concepts as arrived at are based on a person’s judgment and cannot determine the policy in the real world.
On RBI’s relations with the government, Governor Das said they have been smooth during his nearly six-year term, and credited the close coordination between the two for the quick revival of the economy after the pandemic.
“I am saying (this) from my experience. Nobody expects RBI to be a cheerleader. I have had no such experience,” he said.