Union Finance Minister Nirmala Sitharaman has called on banks to concentrate on their core business activities, emphasising the importance of innovative products to increase deposits. She highlighted the need for stricter deposit collection and lending practices while addressing a press conference following a post-budget meeting with the RBI.
Call for innovation
Sitharaman encouraged banks to develop innovative products to boost deposits, particularly in light of the growing gap between deposits and lending. She emphasised that this focus on core activities should come before introducing new initiatives.
"The Reserve Bank and the Government are repeatedly telling the banks to pay attention to their core business activities. It is not that they are not paying attention, but collect deposits and lend with more strictness as this is the core business of banking. Later you can add some new activity if there is a mismatch between deposits and lending, and the wheel of deposit is being slowed down and lending is increasing fast," the Finance Minister said.
"I, in fact, will be meeting with the banks for various reasons to take up comments, priority sector lending, emphasis on some of this common schemes, and also in that process, talking to them about how it is important for them to grow the banks," she added.
RBI's stance
RBI Governor Shaktikanta Das echoed Sitharaman's concerns, noting that the central bank has repeatedly alerted banks about the widening gap between deposits and lending, which has exceeded 300 basis points in recent months. Das urged banks to use their branch networks to introduce innovative schemes to address this issue.
Bank-specific situations
Governor Das also mentioned that the situation varies among banks, with some launching special drives to raise deposits by offering higher interest rates temporarily. He highlighted the importance of banks deciding on interest rates based on their overall financial health and macroeconomic conditions, particularly in terms of their CASA (Current Account Savings Account) deposit balances.
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