Facilitating transfer of government funds to park funds as short-term deposits with banks could help ease the slowdown in deposits, according to Kotak Mutual Fund CEO Nilesh Shah.
If the government parks funds with the banks instead of the Reserve Bank of India, the funds would be back in the system at a faster pace than through the use of the central bank’s dividends to the government. ” This would also help the government earn an interest on them” Shah said at a panel discussion on ” Future of household savings and deposit mobilisation by banks” at a Ficci-IBA ( Indian Bank Association) seminar in Mumbai on Thursday.
“More than due to shift by bank depositors to mutual funds, it is the government action ( parking of funds with the central bank) that has impacted the deposit growth” he said.
Even as the jury is out whether the deposit growth lags credit growth bankers have highlighted the challenges in pushing deposits amidst rising costs due to an apparent structural shift in the deposits and household savings mobilisation pattern.
The country’s largest lender State Bank of India is adopting a differential approach towards different economic segments. It has a different approach and a separate team for the upper income bracket, Trusts and societies and the lower value segments and sees a potential to raise deposits in all segments, according to Rana Ashutosh Kumar Singh, MD risk and compliance State Bank of India. ” Deposits will come back. But more efforts are needed from us” he said at the session.
According to the latest RBI data, while credit grew 14 percent on an annualised basis as of August 09, deposits grew 11 percent.
Yes Bank MD nd CEO Prashant Kumar called for Innovations in deposit products to attract more resources flow to banks. ” Innovations will depend on whether banks will be able to offer differential rate of interest according to the risk profile of the depositor.
Credit off take is expected to continue in FY25 at a steady rate. However, expanding the liability franchise for sustaining this growth remains important, as the Credit to Deposit ratio remains elevated at 79.4%. as of 9th August 2024, according to Caredge Ratings. Additionally with repo rates remaining unchanged for more than a year, lending rates have remained broadly steady while, funding costs have been on an uptrend due to ongoing re-pricing and an increase in select tenors by certain banks, said the ratings agency.
Defending the mutual fund industry, Nilesh Shah, MD and CEO Kotak Mutual fund said that mutual funds flows remain within the banking sector. But it is efficient government balances management and shift in government funds from banks to mutual funds that has made a difference. Besides small savings mobilisation are also another source of leakages from the banking system.
