India’s Finance Minister, Nirmala Sitharaman, has urged banks to develop new and innovative deposit schemes to address the widening gap between credit growth and deposit mobilization. This directive came during a press briefing following the Reserve Bank of India’s (RBI) board meeting, where the minister highlighted the urgent need for banks to enhance their core banking activities, particularly the mobilization of deposits.
Sitharaman emphasized that deposits are a fundamental pillar of the banking system, necessary to sustain lending activities. She pointed out that while lending growth has been robust, deposit growth has lagged, creating a mismatch that could pose risks to the financial stability of banks.
The Finance Minister’s call aligns with concerns raised by RBI Governor Shaktikanta Das, who noted that many banks have increasingly relied on short-term, non-retail deposits and other liability instruments to meet the rising demand for credit. This trend, according to Das, could potentially lead to structural liquidity issues within the banking sector if not addressed through more sustainable deposit mobilization strategies.
To counter this, Sitharaman has encouraged banks to not only offer more attractive interest rates but also to design innovative products that cater to the diverse needs of depositors. She suggested that banks leverage their extensive branch networks and technological capabilities to attract household savings, which are vital for long-term financial health.
This push for innovation in deposit products is seen as a strategic move to ensure that the banking sector remains resilient amidst growing economic challenges. By focusing on deposit mobilization, banks can better support the economy through more balanced and sustainable credit growth, ultimately contributing to India’s broader financial stability.
This directive underscores the government’s broader objective to maintain a healthy balance between credit expansion and deposit accumulation, ensuring that banks remain well-capitalized and capable of supporting the country’s economic ambitions.
