Mumbai: Lowering the cash deposit ratio or the proportion of deposits which banks are mandatorily required to park with the RBI will help the lenders facing low deposit growth, SBI Managing Director Ashwini Kumar Tewari said on Monday. Conversations for such a cut are on, he told reporters here, clarifying that the country’s largest lender does not need such a reduction as it is well placed on the liquidity front.
There has not been any formal request for a CRR cut made either, he added.
Speaking at an event organised by domestic rating agency Careedge, Tewari said, “We have to look at various avenues for helping tide over the challenge posed by lower deposit growth”, and specifically mentioned a request to get bank deposits at par with capital market investments while referring to CRR and SLR.
To a question on whether the bank has sought a CRR cut, he said, “We have not sought any formal dispensation, but it is a conversation we continue to have. I don’t think there is any move to do this at the moment”.
When asked if a CRR cut will help banks tide over the continuing wedge between the credit and deposit growth, he said, “Of course, it will help”.
The economy will need resources to help fund the growth, he said, adding that 90 per cent of all economic activity is funded by the banks.
SBI’s statutory liquidity ratio or investments in government bonds are 2-3 per cent higher and hence, it may not benefit as much. But there are banks running credit deposit ratios of up to 90 per cent for whom the CRR cut, which expands the lendable resources for a bank, will be of help.
The CRR has sometimes been a contentious one between commercial bankers and the RBI because it does not fetch any returns for the banks. In the past as well, banks have unsuccessfully made cases for a cut. The CRR was cut steeply, following the outbreak of the pandemic but was raised again, and now stands at 4.5 per cent.
Tewari said rate hikes have been fully transmitted by the lenders in the system, but rued that there is a heavy competition among lenders on the lending side, which is even leading to cases where the rate offered to get the best quality loans at lower than the deposit rates.
He said the banking system would have got a much larger share of deposits had the focus not shifted to mutual fund investments or direct exposure to equity markets.
“We are at the seventh or eighth quarter when the bank deposit is lagging the loan growth not only in percentage terms but also in absolute terms. This puts a lot of pressure on the funding requirements for banks,” he said.
Tewari said ex-depositors are getting into the capital market segments like futures and options and pitched for regulatory intervention on the same.
“People do not understand, that there has to be some controls which hopefully will come through,” he said.
The share of the low-cost current and saving account deposits available with the banks are also lower at just over 30 per cent even though the headline numbers would say the numbers are over 40 per cent, he said, adding that the actual funds available at low costs are just over 30 per cent after considering the sweep facility and the high savings rate given by lenders.
This will ensure that the pressure on net interest margins will continue, he said.
Tewari also pitched for the introduction of long-term measures like the transition to an expected credit loss-based provisioning system at present, when the going is good for the banking sector.
