Reduce reliance on wholesale deposits to fund loans: RBI to banks
Reserve Bank of India (RBI) Thursday said that banks must reduce their reliance on wholesale deposits to fund loans, and be watchful of the risks associated with their advances and trading exposures amid interest rate fluctuations.
“Considering the dynamic nature of the interest rate risk, banks may have to address both trading and banking book risks, especially in the light of moderating net inter margins,” the RBI said in its annual report for FY24 Thursday. “On the liabilities side, it is imperative to focus on diversification of deposit sources as reliance on bulk deposits heightens sensitivity to interest rate fluctuations,” it added.
The RBI also pointed out that regulatory measures aimed at slowing consumer lending have worked.
Risk Weights
“Pre-emptive regulatory measures aimed at curbing excessive consumer lending and bank lending to non-banking finance companies (NBFCs), and investments in alternate investment funds (AIFs) are expected to contain the build-up of potential stress in balance sheets of financial intermediaries and contribute to financial stability,” said the regulator in the annual report.
The central bank also said the financial sector is sound and vibrant, supporting double digit credit growth, backed by high capital adequacy, solid earnings, and improvements in asset quality.
The RBI also stated that it is striving to make its regulations more principle-based, activity-oriented and proportionate to the scale of systemic risk rather than entity-oriented.
In FY25, the RBI will issue
