“It is observed that alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth. As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand,” Das said.
“This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues. Banks may, therefore, focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network,” he added.
India’s bank deposits
A research report from the State Bank of India (SBI) reveals a sustained increase in credit growth among Indian banks, which is surpassing the growth of deposits.
This trend continues despite a significant rise in investments by Indian households in mutual funds and equities. In recent months, over Rs 21,000 crore has been invested in mutual funds alone.
At a recent event, RBI Governor Das highlighted that households are increasingly choosing capital markets over traditional banks for investing or storing their savings. “While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds.”Latest fortnightly credit and deposit growth number shows credit growth continues to outpace deposit, though moderated from last year growth of 16.2% (June’23 YoY),” a SBI Research report said.Specifically, for the fortnight ending July 12, 2024 the report noted that the credit growth for All Scheduled Commercial Banks stood at 14 per cent on a year-on-year basis, while deposit growth was reported at 11.3 per cent.
