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Indians are now investing money in Mutual Funds and other options instead of Banks


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During his address at the FE Modern BFSI Summit 2024, RBI Governor Shaktikant Das highlighted a significant shift in household investment behavior. Traditionally, banks were the primary choice for households to park or invest their savings. However, Governor Das noted that there is now a growing preference for capital markets and other financial intermediaries.

Diversification of Investments

Governor Das pointed out that households are increasingly moving their savings away from traditional bank deposits and diversifying into mutual funds, insurance funds, and pension funds. Despite bank deposits remaining dominant as a percentage of financial assets, their share has been declining as households explore broader investment options.

Implications for the Banking Sector

This shift in investment patterns has important implications for the banking sector. Banks are now facing the challenge of bridging the gap between credit and deposits. To address this, they have increasingly relied on alternative sources such as short-term borrowings and certificates of deposit. This reliance has heightened their sensitivity to interest rate fluctuations and posed challenges for liquidity management.

Need for Adaptation and Vigilance

Governor Das emphasized the need for banks to adapt to these changing dynamics. Banks must continuously improve their credit underwriting standards and refine risk pricing to maintain stability and profitability. The shift from CASA (Current Account Savings Account) deposits requires banks to remain vigilant and responsive to evolving market conditions.

Lessons from Global Banking Crises

Reflecting on recent global banking events, Governor Das drew attention to the banking crises in the US and Switzerland in 2023. These crises underscored the risks and vulnerabilities associated with certain banking business models. He stressed the importance of learning from these events to strengthen the resilience of the banking sector, noting, “The banking crisis in the US and Switzerland in 2023 has again brought into focus the risks to banking stability from certain business models and their inherent vulnerability.”

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