Kolkata/Mumbai: The Reserve Bank of India has told banks to find ways to bridge the gap between credit and deposit growth and reduce credit-deposit ratio, raising concerns over the persistent higher credit growth than deposit mobilisation which could pose a risk in business sustainability.
The central bank Governor Shaktikanta Das held a meeting with the heads of public sector banks and select private sector lenders Wednesday where he spoke about high credit-deposit ratio, the resultant liquidity risk management challenges, trends in unsecured retail lending as well as cybersecurity and third-party risks and the need for improving customer services.
He also highlighted the importance of further strengthening the governance standards, risk management practices and compliance culture in banks.
“The governor stressed on the need to reduce the credit-deposit ratio,” said a top banker who attended the meeting. “He also talked about cyber-security, customer service among other issues in this periodic meeting,”
In the latest financial stability report released last week, RBI said that credit growth in excess of 18% could lead to “higher impairments”, given the trend of credit growth outpacing deposit mobilisation for a long period of time.
“The issue of high credit deposit ratio came up but that is more of an issue for private sector banks because public sector banks have CR ratios within the 75%-80% range. The RBI reiterated the need for banks to balance their credit-deposit ratio,” said another bank CEO present in the meeting
On a sectoral level, credit growth was recorded at 15.6% year-on-year as on June 14 while deposits growth was lower at 12.1%. Many banks have offloaded their government securities to fund credit growth last year.
“There were a variety of topics discussed including those of mule accounts and cyber security risks. On mule accounts banks shared their risk mitigation strategies on how they identify abnormal transactions in some accounts and the steps taken to monitor them,” the second banker said.
The issues like credit flows to MSMEs and increasing the usage of Indian rupee for cross-border transactions also came up.
These interactions are part of the central bank’s continuous engagement with the senior management of regulated entities. The meeting was attended by Deputy Governors, M Rajeshwar Rao and Swaminathan J.
In his opening remarks, Governor Das noted the continued improvement in banks’ asset quality, loan provisioning, capital adequacy, and profitability while acknowledging the higher resilience and strength of the banking sector, RBI said in a note.
He emphasised the need for banks to ensure robust cybersecurity controls and effectively manage third-party risks. He urged them to step up efforts against ‘mule accounts’ and also intensify customer awareness and education initiatives, among other measures, to curb digital frauds.
