Challenges in Bank Deposit Growth: Shifting Household Savings and the Race to Mobilize Funds

The services sector development in India has gradually slowed down in terms of deposit accumulation where deposit has grew by 11. while credit growth expectation is at 15% in the same period, non-performing loans/NPLs ratio is expected to reduce to 7% in June 2024. This spread is resulting in asset-liability disadvantages for the banks and such concerns have raised eyebrows from the government and the Reserve Bank of India (RBI). Technological advancement: The transfer of household savings deposit to capital markets has undermined the slow rate of deposit growth. The reduction in risk-taking activity in the product markets has seen more retail investors searching for higher returns in the capital markets through direct trading and mutual funds, complemented by growth in demat accounts and mutual fund participation.

The RBI and government have called upon the banks to step up deposit mobilization using the branch network and introduce deposit products. While commenting about RBI monetary policy, RBI Governor Shaktikanta Das raised concerns about structural liquidity problems in case the deposit expansion does not follow credit. They have to mobilize small deposits, not only big ones which Finance Minister Nirmala Sitharaman stressed upon.

Special deposit schemes have been launched by various banks in order to overcome this problem states SBI, Bank of Baroda among others. SBI’s “Amrit Vrishti” offers 7.25% interest for 444 days, while Bank of Baroda’s “Monsoon Dhamaka” offers similar rates. However, even in the near term, indications are that tightness in deposit growth is set to continue which could compromise the cost of funds for banks as they strive to deliver strong credit growth by having to offset by paying higher interest on deposits.