On this regard, he famous that households are more and more turning to different avenues equivalent to mutual funds, insurance coverage funds and pension funds for deploying their financial savings as an alternative of banks.
Referring to the present divergence between mortgage and deposit progress charges, Das mentioned: “It goes with out saying that there’ll all the time be some hole between the 2, however credit score progress shouldn’t run forward of deposit progress by miles.”
Particularly, when banks are required to keep up CRR (money reserve ratio), SLR (statutory liquidity ratio), LCR (liquidity protection ratio), and so on.
“It’s, after all, recognised that just about each mortgage creates a brand new deposit within the borrower’s identify or provides to his or her account steadiness. In different phrases, cash begets cash within the banking system. However the elementary level is that there must be an affordable steadiness between credit score and deposit progress,” the Governor mentioned at a BFSI occasion organised by a monetary publication.
Noting that deposit mobilisation has been lagging credit score progress for a while now, Das mentioned this may increasingly probably expose the system to structural liquidity points.
“Whereas there could possibly be a debate relating to ‘deposits funding loans’ vis-à-vis ‘loans funding deposits’, the present regulatory concern stems from the truth that there could possibly be structural adjustments occurring which banks have to recognise and, accordingly, devise their methods.
“Households and customers who historically leaned on banks for parking or investing their financial savings are more and more turning to capital markets and different monetary intermediaries,” Das mentioned.
The Governor mentioned whereas financial institution deposits proceed to stay dominant as a proportion of economic property owned by households, their share has been lowering with households more and more allocating their financial savings to mutual funds, insurance coverage funds and pension funds.
To be exact, households are more and more turning to different avenues for deploying their financial savings as an alternative of banks, he added.
On their half, banks have sought to fill the credit-deposit hole by growing their reliance on different sources equivalent to short-term borrowings, Certificates of Deposit, and so on.
This will increase their sensitivity to rate of interest actions and poses challenges to liquidity danger administration, Das mentioned.
The Governor remarked that the shift in deposit preferences from present account and financial savings account (CASA) deposits has numerous implications that banks want to bear in mind. With credit score progress remaining robust, banks have to repeatedly deal with enhancing and refining their credit score underwriting requirements and pricing of dangers.
LCR framework evaluate
Das mentioned it’s crucial that Indian banks put in place prudent liquidity administration measures proactively.
“It must be borne in thoughts that incorrect valuation of liquid property can provide a false sense of short-term liquidity resiliency, which isn’t fascinating.
“The Reserve Financial institution, on its half, is reviewing the Liquidity Protection Ratio (LCR) framework to deal with the rising points. This can be finished after detailed public and stakeholder consultations,” he mentioned.
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