RBI Raises Alarm Again on Banks' Widening Credit-Deposit Gap

RBI has once again raised a caution sign for banks to address the gap between credit and deposit growth and lower the credit-deposit ratio. This moves comes as concerns are rising around the continuous surge in credit growth compared to deposit mobilisation. This could threaten the sustainability of both private and public banks.

Earlier this week, Governor Shaktikanta Das held meetings with the MD & CEOs of Public Sector Banks and select Private Sector Banks in Mumbai. Deputy Governors, Shri M. Rajeshwar Rao and Shri Swaminathan J, and Executive Directors-in-Charge of Regulation and Supervision functions, were also present at the meeting.

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While Governor Shaktikanta Das expressed his optimism around the ongoing improvement in banks’ asset quality, loan provisioning, capital adequacy and profitability, he pointed out the need to reinforce governance standards, risk management practices and compliance culture within the banking sector.

"He also emphasised the need for banks to ensure robust cybersecurity controls and effectively manage third-party risks. He urged them to step up efforts against ‘mule accounts’ and also intensify customer awareness and education initiatives, among other measures, to curb digital frauds," a government release read.

During the meeting, Governor Shaktikanta Das discussed about several key issues, such as unsecured retail lending, liquidity risk management and asset-liability management (ALM) related concerns. He also talked about the need of cybersecurity, addressing third-party risks and combating digital fraud.

The meeting also focused on the need to strengthen assurance functions within banks and ensuring sufficient credit flows to micro, small, and medium enterprises (MSMEs).

This meeting comes at a time when Finance Minister Nirmala Sitharaman will be presenting her seventh consecutive budget in the parliament this month for FY25.

The previous such meeting took place on February 14 earlier this year.