Budget 2025: Lenders seek support to mobilise retail deposits, boost consumption
While Indian banks have improved capital adequacy and asset quality, deposit growth remains a challenge. Experts suggest incentives for retail deposits and a focus on consumption to boost liquidity, alongside a push for financial sector growth to align with the Viksit Bharat vision.
India’s banks are in a strong position on the back of adequate capitalisation, healthy asset quality, steady demand for credit and inroads into digitalisation. All public sector banks, barring a couple, improved their capital adequacy ratios in FY24 from levels in FY22.
However, a key pain point for banks in 2024 was deposit mobilisation, which continues to fall short of growth in advances, leading to liquidity constraints. While this gap narrowed in October and November, credit growth once again outpaced deposit growth in December.
Some incentives for retail bank deposits could improve the ability of lenders to garner such funds and support the supply of credit, said Sachin Sachdeva, vice president, sector head - financial sector ratings at ICRA, adding that this is especially important given the proposed changes in the liquidity coverage ratio (LCR) framework and moderation in LCR of banks over the past quarters.
Non-banking finance companies, specifically, are going through growth consolidation and confidence building following a series of regulatory constrictions and proscriptions, said A M Karthik, senior vice president and co-group head - financial sector ratings at ICRA.
“Affordable housing and infrastructure shall continue to remain in focus this fiscal, too. However, steps to boost consumption shall help in borrower cash flows and uphold sector asset quality," he said, adding that initiatives towards deepening and widening of the capital markets and facilitation of overseas funding will support funding diversification.
Viksit Bharat vision
Others said the financial services sector needs to grow much bigger. The outlook is bright, but the sector will have to grow 20 times to support the vision of Viksit Bharat, the government’s plan to make India a developed nation by 2047, the centenary of its independence, Himanish Chaudhuri, partner and financial service leader at Deloitte, said in a note earlier this month.
“To achieve this momentous growth, the sector will continue navigating the ongoing geopolitical tensions, fostering financial inclusion and discipline, embracing new technology and innovations and creating a robust risk management framework," he said.
Yashraj Erande, India leader, financial institutions practice, and global leader, fintech practice at BCG, said that to sustain inclusive growth, the focus of the budget should be on five key areas. These include enhancing access to real-time credit data from lenders, creating a regulatory environment that supports partnerships between incumbents and fintechs as well as financial Infratech companies, and stronger focus on non-financial risk and compliance.
“Facilitating easier and greater access to global capital that wants to come to India, and encouraging more competition in the banking system will attract fresh capital and create more efficiency," said Erande.
topics
