Finance Minister to banks: Innovate, focus on small deposits to plug gap with credit growth

Sitharaman, after addressing the Central Board of Directors of the RBI at the customary post-Budget meet, said the bread and butter of banks lies in mobilisation of small deposits, and huge bank deposits have always been a lazy banker’s job. “It’s right that credit is going through digital format and collection of deposits is not. Huge big deposits have always been a very lazy banker’s job but the trickles which come are going to be the bread and butter money to lend regularly. So that trickle (small deposit mobilisation) was the emphasis a long, long time ago…the requisite small deposits, that’s also one of the very critical jobs of the bank. It might be grinding monotony but that’s where your bread and butter lies,” she said.

The Finance Minister further said that at present, even those families who have small savings, they also have got new options to invest even if via stock markets and banks have to compete with those options to attract deposits. “More portfolios are available for more returns on money, that’s why retail investment in markets has gone up. When they have so many options, banks also have to make use of innovative portfolios for attracting investment and deposit mobilisation,” she said. Sitharaman said she would be meeting banks to discuss the priority sector lending areas, some government schemes, as well as the importance for them to revert to deposits collection in the old fashioned way. She is likely to hold a meeting with heads of public sector banks on August 19.

RBI Governor Das said rates, both on credit and deposit sides, are deregulated and it can be “very retrograde and distortive going back on economic reforms”. Das said there is always some mismatch between deposit and credit growth but it’s a proactive caution to banks to arrest the slide in deposits. “Two questions arise: what is the gap in the growth rate between deposits and loans. Second thing is how persistent it is and how long it is going on. In our case, we have been witnessing a 300-400 basis points gap between deposits and credit growth, deposits are lower, it has been observed in the last few months…going forward this may create structural issues with regard to liquidity management. As it stands today, we don’t see a crisis or anything but it has to be attended to and dealt with by the individual banks. If it goes on like this unattended, it can lead to a potential structural liquidity management issue. So it’s an advance cautioning to the banks,” he said.

On Thursday during the monetary policy review address, Das had expressed worries over banks and non-banking finance companies (NBFCs) not following regulatory norms while offering top-up loans on other collateralised loans such as home and gold loans and the need for lenders to garner deposits amid concerns over a shift in household savings from banks to alternative investment avenues.

Banks are facing challenges on the funding front with bank deposits trailing loan growth. As of July 12, while deposits grew by 11.7 per cent, loan growth increased by 15.5 per cent.

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