Union Finance Minister Nirmala Sitharaman on Saturday stressed on the need for banks to focus on ‘core banking’. The FM made the remark at a meeting of the Central Board of Directors of the Reserve Bank of India.
“Both RBI and the government want Banks to focus on core banking,” Sitharaman said, as she asked banks to prioritise their vital business which is mobilising deposits and lending funds.
Joining the FM, RBI governor Shaktikanta Das said that banks are free to decide rates of interest while highlighting that interest rates on deposits and lending are deregulated.
“Interest rates on deposits, lending are deregulated,” Das said, further adding that “banks free to decide rates.”
RBI’s cautionary advice to banks
RBI Governor Das raised concerns about a deposit-lending mismatch in the banking sector. He noted that banks are increasingly relying on short-term, non-retail deposits and other financial instruments to meet rising credit demands.
Furthermore, Das cautioned that this reliance could lead to potential liquidity problems within the banking system, ” this may potentially expose the banking system to structural liquidity issues. Banks may, therefore, focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network.”
He advised banks to concentrate on attracting household savings by offering innovative products and utilizing their extensive branch networks more effectively.
In order to overcome the mismatch between deposits and lending, FM Sitharaman asked banks to come up with “innovative and attractive” deposit schemes to mobilise funds from the people.
FM Sitharaman also urged banks to bring innovative products and raise deposits.
The post-Budget meeting took place shortly after the Union Budget for 2024-25 and the Lok Sabha’s passing of the finance bill with some government amendments. Held at the Reserve Bank of India (RBI) office, it included RBI Governor Shaktikanta Das and other board members of the Central Bank.
A review of Budget provisions
The meeting aimed to review budget provisions and the current economic situation in the country.
On August 7, Finance Minister Nirmala Sitharaman expressed confidence in the Union Budget, emphasizing the government’s focus on simplifying tax laws and procedures to boost growth and employment.
The FM highlighted Prime Minister Narendra Modi’s vision of creating a straightforward, efficient, and fair tax system. Sitharaman noted that the goal has been to ease compliance, reduce taxpayer burden, and ensure transparency.
RBI keeps repo rate unchanged under Modi 3.0
The Union Budget, presented by Sitharaman on July 23, is the first full budget of PM Modi’s third term, following the BJP-led NDA alliance’s third consecutive victory.
On August 8, the RBI decided to keep the repo rate at 6.5 percent for the ninth consecutive time, maintaining stability in its monetary policy despite ongoing inflation concerns. The RBI’s Monetary Policy Committee projects a 7.2 percent economic growth rate for the fiscal year 2024-25.
