Deposit growth is the Indian banking sector’s biggest challenge as customers choose from an increasingly diverse range of investment alternatives, according to Shalini Warrier, retail business head at Federal Bank Ltd.
“There is no silver bullet for this,” Warrier said on Bloomberg TV Monday. When “fixed deposit rates don’t go up as much as customers would like them, they look for alternates.”
Deposit growth has lagged strong demand for credit in India for several quarters now, prompting top officials to weigh in. Finance Minister Nirmala Sitharaman and Shaktikanta Das, governor at the Reserve Bank of India, has urged banks to innovate in order to increase their deposits as household savings shift to investment products.
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Failure to boost deposits means loan growth may need to be “tempered down,” and “corporates will have to look for other alternative opportunities to raise funds,” Warrier said in her interview with Paul Allen and Avril Hong.
Federal Bank’s most senior female executive, Warrier added that lending could also be hampered by a draft RBI proposal that would require banks to hold more liquid assets to cover retail deposits from internet and mobile banking.
“What would potentially happen is the cost of deposits would go up for banks,” she said, and banks will “transfer that in some form and fashion to the cost of lending so that margins are retained.”
Federal Bank’s deposit growth roughly matched credit growth for the year ended June 30, 2024, according to its latest earnings presentation, with both up 20% year-on-year and 5.4% quarter-on-quarter.
“Our objective has been to go into those places where industry is flourishing, particularly around what we call the “Made in India” ethos and philosophy of small and medium enterprises,” Warrier said.
The bank also used its digital platform and partnerships with fintech companies to reach more customers, she said.
