Banks Tap Alternative Sources as Deposits Slow: RBI

Mumbai, Aug 19 (PTI) Banks are tapping alternative sources like commercial paper and certificates of deposit as deposit growth lags credit growth, RBI August Bulletin said on Monday.

In the primary market, certificates of deposit (CD) issuances amounted to Rs 3.49 lakh crore during 2024-25 (up to August 9), significantly higher than Rs 1.89 lakh crore in the corresponding period of the previous year.

This increase amid deposit growth lagging credit expansion prompted banks to rely on alternative funding sources, as per the RBI article.

Commercial paper (CP) issuances also increased to Rs 4.86 lakh crore during 2024-25 (up to July 31), surpassing Rs 4.72 lakh crore in the corresponding period of the previous year, driven by NBFCs' higher borrowings in the CP market, it added.

While unveiling bi-monthly monetary policy, Reserve Bank Governor Shaktikanta Das expressed concern over household savings moving towards alternative investment avenues and asked banks to mobilise deposits through innovative products and services by leveraging their vast branch network.

"Banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand. This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues," he had said.

Concerned over slow deposit mobilisation, Finance Minister Nirmala Sitharaman earlier in the day asked banks to make concerted efforts to garner deposits.

Deposits have been growing 300-400 basis points lower than the credit growth in the last few months, creating an asset-liability mismatch for banks.

Sitharaman also advised public sector banks (PSBs) to have better relationships with their customers for efficient customer service delivery, an official statement said.

She asked banks to ensure that employees reach out to connect with their customers, especially in rural and semi-urban areas.

In the fixed income segment, the bulletin said domestic bond yields eased sharply, reflecting positive sentiment following the inclusion of Indian government securities (G-sec) in the global bond index, the gross fiscal deficit - gross domestic product (GFD-GDP) ratio being budgeted lower and reduced market borrowing requirements announced in the Union Budget 2024-25.

About system liquidity, the bulletin said it remained in surplus during July and August so far on the back of an increase in government spending, the return of currency to the banking system and the Reserve Bank's forex operations.

The average daily net absorption under the liquidity adjustment facility (LAF) increased to Rs 1.52 lakh crore from July 16 to August 15, 2024.