In the inaugural address at the Financial Express Modern BFSI Summit, RBI Governor Shaktikanta Das expressed concern over the growing gap between credit and deposit growth rates in the banking sector. Speaking at the event in Mumbai, Governor Das emphasized the need for a balanced approach to maintain financial stability.
Drawing attention to the current divergence between loan and deposit growth rates, Das said, “It goes without saying that there will always be some gap between the two, but credit growth should not run ahead of deposit growth by miles. More so, when banks are required to maintain CRR, SLR, LCR, etc. It is, of course, recognised that almost every loan creates a new deposit in the borrower’s name or adds to his or her account balance. In other words, money begets money in the banking system. But the fundamental point is that there has to be a reasonable balance between credit and deposit growth.”
The Governor highlighted that deposit mobilization has been lagging behind credit growth for some time, which could potentially expose the banking system to structural liquidity challenges. He pointed out a shift in consumer behaviour, with households increasingly turning to capital markets, mutual funds, insurance funds, and pension funds for their savings, rather than traditional bank deposits.
“To be precise, households are increasingly turning to other avenues for deploying their savings instead of banks. On their part, banks have sought to fill the credit-deposit gap by increasing their reliance on other sources like short-term borrowings, Certificates of Deposit, etc. This increases their sensitivity to interest rate movements and poses challenges to liquidity risk management. The shift in deposit preferences from current account and savings account (CASA) deposits has various implications which banks need to keep in mind,” Das added.
He urged banks to continuously focus on improving and refining their credit underwriting standards and risk pricing strategies in light of the robust credit growth.
