Deposits: Nirmala Sitharaman urges banks to increase deposits as credit gap widens

Finance minister Nirmala Sitharaman On Saturday, he said lenders should focus on attracting small businesses. deposits that come in “drips” but are the “bread and butter” of the banking system. He commented on the growing gap between deposits and credit, which has become a cause for concern, at a press conference after the Reserve Bank of India (Reserve Bank of India) board meeting in the capital on Saturday.

Sitharaman He said deposits and loans are two wheels of a cart, but “deposits move slowly.”

RBI Governor Shaktikanta Das said the banking regulator had sounded out banks on this as a matter of proactive caution as the trend may lead to potential liquidity problems.

Aggregate deposits of all scheduled commercial banks rose 10.6 percent as of July 26 from a year earlier, slowing the 13.7 percent expansion in credit.

The Finance Minister stressed that it is necessary to focus on the core banking business, which is to mobilize deposits and lend to those in need of funds. Banks must come up with “innovative and attractive” deposit systems, she said.

The central bank governor, while announcing monetary policy earlier this week, also expressed concern over the mismatch between deposits and loans in the banking sector.

Asked whether policy interventions were needed to address the gap between deposits and loans, he said: interest rates Banks were already deregulated and could be used to attract deposits. “Banks are free to decide on interest rates,” Das said. This is part of broader economic reforms and any increased regulation would be a step backwards, he added.

Green bonds at the IFSC
Das also pointed out that banks’ low-cost current and savings accounts (CASA) fell to 39% this year from 43% of total deposits a year ago. He said banks should therefore focus on CASA deposits to reduce costs rather than concentrating only on bulk deposits where “leakage can be very rapid”.

Trading of sovereign green bonds will soon begin at the International Financial Services Centre (IFSC) at the Gujarat International Financial Technology City (GIFT City). “We are in talks with the IFSC and it will be launched very soon. I think in the second half (of the current fiscal year) it will be possible,” Das said.

In April, the Reserve Bank of India announced that it would issue a framework to allow trading of sovereign green bonds on GIFT City. The Centre has been raising funds through green bonds since fiscal 2023 and has mobilised Rs 36,000 crore. In the current fiscal year, this figure remains at just Rs 1,697 crore, out of the proposed Rs 12,000 crore expected to be raised in the first half ending September, as it did not find favourable bids.

“As the government debt manager, we are keeping a close eye on what exactly is happening and if anything needs to be done, we will interact with the government and take care of it,” Das said.

A key factor is the announcement in this year’s budget on the development of a climate taxonomy, according to the RBI governor.

“I think this will have a significant long-term impact on mobilizing funds for the green sector, not only through green bonds, but also in general financing of the green sector.”

FM on Bangladesh
Sitharaman said the Centre was making efforts to ensure security of the border with Bangladesh. She claimed that the textile industry, particularly companies from Tamil Nadu, have made investments in the country and have done well.