Finance minister Nirmala Sitharaman called on public sector banks (PSBs) to intensify their efforts to mobilise deposits, particularly in rural and semi-urban areas, as concerns grow over the widening gap between deposit growth and credit expansion.

At a review meeting on the performance of PSBs on Monday, Sitharaman underscored the need for targeted initiatives to boost deposits and enhance customer service amid fears the current trend could lead to a structural mismatch in the banking system.

The meeting with the heads of PSBs covered deposit mobilisation, digital payments, cybersecurity, and the rollout of new credit products aimed at financial inclusion.

Despite a strong performance by PSBs in 2023-24, marked by improved asset quality and record profits, the slower pace of deposit growth compared with credit expansion was a prominent area of concern.

The finance minister highlighted that deposit growth has lagged behind credit growth by 300-400 basis points in recent months, creating a potential asset-liability mismatch for banks.

Sitharaman emphasised the urgency to address this gap, particularly in rural and semi-urban areas, with significant untapped potential for deposit mobilisation.

She directed PSBs to launch special drives to attract deposits and improve customer engagement, especially in underserved regions.
She stressed the importance of grassroots-level connection with customers to strengthen banking relationships and increase deposit inflows.

The minister also encouraged banks to collaborate and share best practices to stay ahead in the rapidly evolving banking landscape, with particular attention to emerging areas such as digital payments and cybersecurity.

The Reserve Bank of India (RBI) has also flagged the issue of slower deposit growth.

RBI governor Shaktikanta Das recently noted that while there is no immediate crisis, the divergence between deposit and credit growth could pose structural liquidity challenges.
“Our current effort is to bring attention to this issue. It’s a proactive caution for bank managements that this could create structural liquidity challenges in the future,” Das said.

While acknowledging
the efforts made by the banks to improve the asset quality, the minister suggested
optimising the scope of
resolution and recovery offered by the National Company Law Tribunal (NCLT) and National Asset Reconstruction Company Ltd (NARCL).

Observing that the issues of cyber security should be seen from a systemic perspective, she emphasised the need for a collaborative approach between banks, the government, regulators and security agencies for mitigating cyber risks.

She urged that every aspect of the IT system should be reviewed periodically and thoroughly from the cyber security angle to ensure that the security of the bank systems is not breached or compromised.

The minister advised the banks to ensure compliance with the Reserve Bank of India’s guidelines on the handover of security documents after the closure of the loans and directed that there should not be any delay in handing over the documents to the
customer.