RBI Governor Warns Banks of Risks from Short-Term Bulk Deposits

Reserve Bank of India (RBI) Governor Shaktikanta Das has cautioned banks against the risks associated with asset-liability mismatches that could arise from an increased reliance on short-term bulk deposits. He emphasised the need for banks to innovate in attracting deposits, particularly as households increasingly channel their savings into alternative investments.

“Alternative investment avenues are becoming more appealing to retail customers, presenting challenges for banks as deposit growth lags behind loan growth. Consequently, banks are increasingly turning to short-term, non-retail deposits and other liability instruments to meet credit demand, which could expose the banking system to structural liquidity issues,” Das stated.

The RBI is closely monitoring the widening credit-deposit ratio, which has drawn concern due to its potential to heighten systemic risk within the banking sector. Currently, credit growth stands at 15.5%, outpacing deposit growth at 11.7%. Das highlighted the importance of garnering cost-effective deposits as one of the key issues in his policy statement.

He urged banks to leverage their extensive branch networks to mobilise household financial savings through innovative products and services. “The divergence between deposit and credit growth could lead to asset-liability or liquidity management challenges. While it’s up to individuals to decide where to invest their money, banks must be aware of the potential structural challenges related to liquidity management,” Das noted.

Das also clarified that there is no uniform directive for banks to manage their deposits, leaving the decision on deposit rates to individual banks as part of their commercial strategy. “Lending and deposit rates are deregulated, and it is up to banks to determine their rates based on their internal positions, overall economic conditions, and deposit compositions. We simply encourage banks to utilise their branch networks and introduce innovative products to mobilise deposits effectively,” he added.

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