RBI Governor Raises Alarm Over Credit-Deposit Growth Disparity

New Delhi, Jul 20 (KNN) Reserve Bank of India (RBI) Governor Shaktikanta Das expressed concern on Friday regarding the widening gap between credit and deposit growth in the banking sector.

Speaking at an event in Mumbai, Das highlighted the potential for structural liquidity issues as household savings increasingly shift from traditional bank deposits to alternative financial instruments.

"The share of bank deposits in household financial assets is declining, with savings being reallocated to mutual funds, insurance funds, and pension funds," Das stated.

He emphasised that this trend could expose the banking system to structural liquidity challenges.

Recent RBI data reveals that deposit growth in commercial banks slowed to 10.64 per cent for the fortnight ending June 28, while credit growth accelerated to 13.88 per cent year-on-year.

Das cautioned that while some disparity between credit and deposit growth is expected, stating, "Credit growth should not run ahead of deposit growth by miles."

The governor's remarks come in the context of declining overall household savings in India. According to the RBI's June Financial Stability Report, household savings fell to 18.4 per cent of GDP in the 2022-23 fiscal year, down from an average of 20 per cent during 2013-2022.

Additionally, the share of net financial savings in total household savings decreased to 28.5 per cent in 2022-23 from an average of 39.8 per cent in the preceding decade.

Das urged banks to recognise these structural changes and adapt their strategies accordingly. He also noted the importance of maintaining regulatory requirements such as cash reserve ratio (CRR), statutory liquidity ratio (SLR), and liquidity coverage ratio (LCR).

In response to a question about allowing business conglomerates to promote banks, Das stated, "At this point, there is no thinking in that direction."

He cited the difficulties in monitoring and regulating related-party transactions and the high risks involved, based on global experiences.

The governor's statements underscore the RBI's vigilance in maintaining financial stability amid evolving economic trends and consumer behavior in India's banking sector.

(KNN Bureau)