Finance Minister Nirmala Sitharaman urges banks to focus on small deposits to bridge the gap between deposit and loan growth, stressing sustainable banking practices.
Finance Minister Nirmala Sitharaman has urged banks to focus on mobilizing small deposits to address the growing gap between deposit and loan growth. Speaking after the post-Budget meeting with the Reserve Bank of India’s (RBI) Central Board of Directors, she emphasized that banks must not rely solely on large deposits. Instead, they should concentrate on the consistent inflow of small deposits, which have historically been the backbone of banking operations. Sitharaman highlighted that, despite the rise of digital credit, the traditional approach to deposit collection remains crucial for sustainable growth.
Sitharaman, after addressing the Central Board of Directors of the RBI at the customary post-Budget meet, said the bread and butter of banks lies in mobilisation of small deposits, and huge bank deposits have always been a lazy banker’s job. “It’s right that credit is going through digital format and collection of deposits is not. Huge big deposits have always been a very lazy banker’s job but the trickles which come are going to be the bread and butter money to lend regularly. So that trickle (small deposit mobilisation) was the emphasis a long, long time ago…the requisite small deposits, that’s also one of the very critical jobs of the bank. It might be grinding monotony but that’s where your bread and butter lies,” she said.
RBI Governor Shaktikanta Das echoed these concerns, warning banks of the potential risks associated with the current trend of lagging deposit growth. He noted that the persistent gap between deposit and loan growth could lead to structural liquidity issues if left unchecked. Das stressed that while the situation is not yet critical, banks must act now to prevent future challenges. He also cautioned against rolling back economic reforms, noting that deregulation of rates on both credit and deposits remains essential for maintaining market stability.
The finance minister also acknowledged the increasing competition banks face from alternative investment options, such as stock markets. She urged banks to develop innovative strategies to attract deposits, particularly from retail investors who now have more choices for their savings. Sitharaman announced plans to meet with public sector bank heads on August 19 to discuss priority sector lending and other government schemes, reinforcing the need to refocus on traditional deposit mobilization to ensure long-term stability in the banking sector.
