RBI Governor warns that shift from savings deposits to equities may create liquidity issues for banks

At the recent Monetary Policy Committee meeting, the Reserve Bank of India (RBI) governor, Shaktikanta Das, expressed his concerns about the shift from saving deposits to equities and its impact on bank liquidity.

The RBI Governor, while addressing the media, stated that there is a growth in the deposit-credit divergence. The deposit-credit divergence signifies the amount of deposits with the bank compared to the amount of credit or loans given out of the bank. With the growing participation of the retail segment in the capital markets, banks have seen a fall in deposits.

Shaktikanta Das underlined that the shift of savings towards equities does not imply that all savings are being diverted from bank deposits. However, he stressed that a depletion in deposits could potentially result in banks facing liquidity management challenges. With loan growth being faster than deposit growth, banks might face liquidity constraints in adverse situations. Further, certain practices like top-up home loans have also raised concerns.

“First, it is observed that alternative investment avenues are becoming more attractive to retail customers, and banks are facing challenges on the funding front with bank deposits trailing loan growth,” he said.

He expressed concerns about potential liquidity issues and advised banks to mobilise household savings through innovative products and services. Providing clarification on the deposit-credit divergence, he stated that he is not advising individuals to pick between the equity markets or depositing funds with banks. Moreover, he said the Securities and Exchange Body of India (SEBI) has proposed steps to curb the rise in speculative trading in the F&O segment.

At the MPC meeting, the RBI Governor announced that the repo rate will remain unchanged at 6.5%. The RBI has kept the repo rate the same for the past 9 sessions.