Deposit Dilemma: FM Sitharaman challenges banks to think outside the vault as credit outpaces savings growth

Finance Minister Nirmala Sitharaman in a recent press conference after a board meeting with Reserve Bank of India (RBI) called on banks to develop innovative and attractive schemes to boost deposit mobilisation. Nirmala Sitharaman emphasised the importance of balanced growth in both deposits and lending, noting that currently, “deposit is moving slowly.”

The finance minister attended the meeting of the RBI's Central Board of Directors in New Delhi, which took place after the presentation of the Union Budget 2024-25 and the passage of the finance bill in the Lok Sabha. RBI Governor Shaktikanta Das and other board members were also present at the gathering.

Nirmala Sitharaman stressed the need for banks to focus on their core business of mobilising deposits and providing loans to those in need. To address the current mismatch between deposits and lending, she encouraged financial institutions to create "innovative and attractive" deposit schemes to attract funds from the public.

During the joint press conference, RBI Governor Das clarified the regulatory stance on interest rates, saying, "Interest rates on deposits, lending are deregulated; banks free to decide rates." He added that banks often adjust deposit rates to attract funds.

The finance minister reiterated her message, saying, "Banks should bring innovative products and raise deposits."

This call for innovation comes in the wake of concerns expressed by Governor Das during the recent bi-monthly monetary policy announcement. He had warned about banks' increasing reliance on short-term non-retail deposits and other instruments to meet credit demand, potentially exposing the banking system to structural liquidity issues.

Shaktikanta Das had previously advised banks to “focus more on the mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network.”

As the financial sector grapples with these challenges, the government and the RBI appear aligned in their push for banks to explore creative solutions to stimulate deposit growth and maintain a healthy balance in the banking system.

(With inputs from agencies)