The Reserve Bank of India (RBI) and the government have urged banks to prioritize their core banking activities, specifically deposits and lending. This directive was highlighted by Finance Minister Nirmala Sitharaman during a joint press conference with RBI Governor Shaktikanta Das following the 609th meeting of the RBI’s Central Board of Directors.
Deposits and Lending: The Two Wheels of a Cart
Finance Minister Sitharaman emphasized that deposits and lending are crucial to the functioning of banks, likening them to the “two wheels of a cart.” However, she pointed out that the mobilization of deposits is currently lagging. To address this issue, banks are encouraged to focus on their core business activities—mobilizing deposits and lending to those in need of funds.
Addressing the Deposit-Lending Mismatch
To resolve the growing mismatch between deposits and lending, Sitharaman called on banks to introduce “innovative and attractive” deposit schemes. These schemes are intended to attract more funds from the public, ensuring a balanced growth between deposits and lending.
RBI’s Perspective on Interest Rates
RBI Governor Shaktikanta Das provided insights into the current interest rate scenario. He mentioned that interest rates are deregulated, allowing banks the freedom to set deposit rates as per their requirements to attract funds. Das reiterated that banks are at liberty to decide on both deposit and lending rates according to their business needs.
Concerns Over Deposit-Lending Mismatch
Earlier in the week, while unveiling the bi-monthly monetary policy, Governor Das expressed concerns regarding the deposit-lending mismatch in the banking sector. He observed that banks are increasingly relying on short-term non-retail deposits and other liability instruments to meet the rising demand for credit. This practice, Das warned, could potentially expose the banking system to structural liquidity risks.
Call for Innovative Solutions
Governor Das urged banks to focus more on mobilizing household financial savings. He suggested that banks should introduce innovative products and services while fully leveraging their extensive branch networks to address the liquidity issues.
Post-Budget Meeting Overview
The joint press conference and discussions took place during the customary post-Budget meeting of the RBI’s Central Board of Directors in New Delhi. The meeting was attended by Union Finance Minister Nirmala Sitharaman, Union Minister of State for Finance Pankaj Chaudhary, and RBI Governor Shaktikanta Das.
