Shaktikanta Das and the brewing challenge of slowing bank deposits

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₹1.5-lakh exemption under Section 80C of the Income Tax Act and, two, funds in the fixed deposit have to stay locked in for five years. There is now a demand to further liberalize this category of deposits. The other reason for slow deposit growth has been the banking sector’s near-stagnant physical presence.

Banks, influenced by societal hype about the primacy of digital outreach, halted the expansion of brick-and-mortar branches. Many bank chief executives, who had their bonuses linked to margin growth and market cap increases, also went slow on branch expansion to lower costs and boost bottomlines. There is now a belated realization that physical branches play a critical role in customer acquisition and deposit growth.

Many leading banks are now making amends by setting aside capital expenditure to aggressively expand their physical footprint, to go hand-in-hand with increased investments in direct marketing and digital outreach. There is another reason for the overdue push for branches. Within the banking system, the nature of the deposit mix is changing and moving towards high-cost deposits.

Banks have traditionally relied on cheaper current-account-savings-account (CASA) deposits as a source of perennial low-cost funds. However, RBI data shows that CASA’s share has been shrinking in the overall mix, which has been compensated by some growth in costlier term deposits. The resulting pressure on margins may have also impelled bank management to revive CASA’s share by focusing on branch networks.