Reserve Bank of India governor Shaktikanta Das on Thursday cautioned banks that the wide gap between the deposits and credit growth could create structural liquidity issues. “The divergence between deposits and loans could potentially create liquidity management issues for lenders,” Das said while presenting the monetary policy statement.
The governor exhorted banks to come up with innovative products and leverage their extensive branch networks to garner deposits. The growth in deposits has been trailing the growth in loans, and this has resulted in elevated credit-deposit ratios for some lenders.
Das was speaking in the context of banks finding it hard to mop up deposits with alternative investment avenues, including mutual fund schemes, turning more attractive for individuals. The attraction for equities has pushed up the ratio of equities as a share of net household financial assets to 14.7% in FY23, from just 4.5% in FY21. Experts say it could trend up further, possibly at the cost of bank deposits. Systematic investment plans of MFs are seeing inflows of `20,000 crore on an average per month.
The governor observed that owing to the slowdown in retail deposit mobilisation, banks were increasingly resorting to borrowing via short-term, non-retail deposits and other instruments to take care of the incremental demand for credit. “This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues,” the governor said.
Credit growth in June decelerated to 17.4% (13.9% excluding the HDFC merger), from 20.8% in the previous month. The pace of growth of deposits also moderated to 11.1%, driven by a big drop in the growth in demand deposits. The growth in time deposit also moderated.
Das asserted that banks must decide own their own, and on a commercial basis, how they would raise more deposits. “It would depend on each bank’s internal assessment and the composition of deposits. We are merely suggesting they could tap their branches,” he said. Das made it clear there were no specific instructions that were being given. “We trust their risk management systems,” he said. Most banks reported a sluggish growth in cheaper CASA deposits for the June quarter.