RBI Chief Warns Banks: Balance Deposit and Credit Growth

Reserve Bank of India Governor Shaktikanta Das cautioned banks about structural liquidity issues if deposit growth continues to lag behind credit growth. He highlighted concerns over high ceilings for unsecured credit and urged banks to balance credit and deposit growth. Das also noted a shift in household savings to other instruments like mutual funds.

Reserve Bank of India (RBI) Governor Shaktikanta Das on Friday issued a stark warning to banks about potential structural liquidity issues if deposit growth fails to keep pace with credit growth.

Das raised concerns over the high ceilings for unsecured credit, urging banks to exercise prudence and avoid risky exuberance. He emphasized the importance of maintaining a 'reasonable balance' between credit and deposit growth, noting that household savings traditionally directed towards bank deposits are now increasingly flowing into mutual funds and other investment instruments. Speaking at a Financial Express summit, Das remarked that credit growth should not significantly outstrip deposit growth, as banks are required to maintain regulatory reserves like CRR, SLR, and LCR. He warned that lagging deposit mobilization could expose the financial system to structural liquidity issues.

Highlighting the shift in household saving behaviors, Das noted that banks are exploring other liability avenues such as certificates of deposits. He also stressed the importance of correctly valuing liquid assets to avoid a 'false sense' of short-term liquidity resiliency. On the matter of digital frauds, Das revealed RBI's collaboration with banks and law enforcement agencies to combat mule accounts and called for stronger customer onboarding and transaction monitoring systems. Additionally, he cautioned against over-reliance on third-party vendors for critical functions without proper oversight.

Das acknowledged a moderation in unsecured credit growth in November 2023, but emphasized the need for enhanced vigilance over delinquency levels and leverage in small-ticket consumer loans. Concluding his address, he assured that the financial sector remains stable and healthy overall. India, he said, stands out as a robustly growing major economy with a financial sector poised for new heights, driven by technological innovations, financial deepening, and changing savings and investment patterns.