Nirmala Sitharaman urges banks to boost deposits as credit gap widens
Nirmala Sitharaman on Saturday said lenders need to focus on raising smaller deposits that come in “trickles,” but are the “bread and butter” of the banking system. She commented on the widening gap between deposits and credit, which has become a cause for concern, at a media briefing after the Reserve Bank of India (RBI) board meeting in the capital on Saturday.
Sitharaman said deposits and lending are the two wheels of a cart, but “deposit is moving slowly.”
RBI governor Shaktikanta Das said the banking regulator had sounded out banks on this as a matter of proactive caution as the trend can lead to potential liquidity issues.
Aggregate deposits of all scheduled commercial banks rose 10.6% as of July 26 from a year earlier, lagging the 13.7% expansion in credit.
The finance minister stressed that they needed to focus on the core banking business, which is mobilising deposits and lending to those who need funds. Banks need to come up with “innovative and attractive” deposit schemes, she said.
The central bank governor, while announcing the monetary policy earlier in the week, had also expressed concern over the mismatch between deposits and lending in the banking sector.
Asked whether any policy interventions were required to address the gap between deposits and lending, he said interest rates were already deregulated and could be used to attract deposits. “Banks are free to decide on interest rates,” Das said. This is part of broader economic reforms and any increase in regulation would be a retrograde step,
