In a joint appeal, the Indian government and the Reserve Bank of India (RBI) have urged banks to intensify their efforts in deposit mobilization, citing concerns over the widening gap between credit growth and deposit growth. The call comes as the Finance Ministry and RBI express unease over the rapid increase in lending outpacing the slower rise in deposits for several months.
Finance Minister Nirmala Sitharaman, during a post-budget board meeting with the RBI, emphasized the importance of deposit mobilization, urging bank executives to return to the basics of banking. ‘Huge deposits have always been a lazy banker’s job. But the trickles which come are going to be your bread and butter money to bank on lending regularly,’ Sitharaman remarked, stressing the need for banks to focus on their core activity. She also indicated that she would discuss this issue further in an upcoming meeting with the heads of state-run banks.
RBI Governor Shaktikanta Das echoed the Finance Minister’s concerns, highlighting a significant 3-4 percentage point gap between credit and deposit growth. “We have been witnessing this trend for several months. At the moment, our effort is to just highlight this point: a proactive caution for bank managements that going forward, this may create structural issues with regard to liquidity management,” Das said. He noted that while lending has become increasingly digital, deposit mobilization remains largely reliant on traditional, physical methods, urging banks to innovate in their approach.
The RBI has also made it clear that banks have the autonomy to set interest rates, with Das stating that the central bank does not intend to interfere with market dynamics. He emphasized the need to balance the interests of both borrowers and depositors when considering rate cuts.
In addition to addressing the credit-deposit gap, the Finance Minister also commented on the Banking Amendment Bill introduced in Parliament, which includes new rules for nominations. Sitharaman described the changes as a customer-friendly move, aimed at ensuring nominees can easily access funds that are rightfully theirs. The bill also proposes a shift to fortnightly data reporting, moving away from the traditional British system, which is expected to facilitate more timely updates and reduce year-end adjustments.
As banks face increasing competition from other investment products, the government and RBI’s joint appeal underscores the need for innovative strategies to sustain deposit growth and ensure long-term financial stability.
