Finance Minister Nirmala Sitharaman recently addressed the Central Board of Directors of the Reserve Bank of India, urging banks to focus on their core business activities and explore new ways to attract deposits. She emphasized the importance of deposit mobilization and lending as the primary functions of banks, highlighting the current mismatch between credit and deposit growth in the banking sector.
Sitharaman stressed the need for banks to be aggressive in collecting deposits and to make them attractive by offering innovative products. She encouraged banks to focus on small savers rather than solely relying on big or bulk deposits. The Finance Minister emphasized the significance of small deposit mobilization, stating that it is a critical aspect of a bank’s operations and a source of steady income.
RBI Governor Shaktikanta Das echoed similar sentiments, pointing out the gap between deposits and credit growth in the banking sector. He highlighted the importance of leveraging the vast branch network of banks to mobilize deposits through innovative means and products. Das also mentioned that interest rates are deregulated, and banks often raise deposit rates to attract funds.
When asked about the need for policy intervention to boost deposit growth, Das emphasized that India has deregulated interest rates, and regulating deposit and credit rates could have negative consequences and distort the market. He emphasized the need for banks to focus on mobilizing household financial savings through innovative products and services.
During the meeting, Sitharaman outlined the vision of the Union Budget 2024-25, its focus areas, and expectations from the financial sector. She underlined the priorities for ‘Viksit Bharat’ and discussed the global and domestic economic situation and challenges posed by geopolitical developments and global financial market volatility.
Overall, the Finance Minister and RBI Governor’s remarks underscore the importance of banks focusing on their core activities of deposit mobilization and lending. By exploring new ways to attract deposits and leveraging their branch networks, banks can ensure a steady flow of funds and maintain liquidity in the banking system. It is essential for banks to adapt to changing market dynamics and offer innovative products to meet the evolving needs of customers.
