Bank business in India saw tepid growth in July as deposit growth slowed down compared to the previous year, according to the Reserve Bank of India. Deposits rose by 10.6 percent year-on-year, while credit grew by 13.7 percent. This slowdown in growth has raised concerns about potential liquidity issues due to the reliance on non-retail deposits. Banks are being urged to focus more on deposit mobilization to ensure stability in the financial sector.
In response to the changing market dynamics, Canara Bank has hiked its lending rate by 5 basis points across all tenors, making consumer loans costlier. The one-year MCLR, affecting auto and personal loans, now stands at 9 percent. This adjustment follows the RBI’s decision to maintain its benchmark lending rate at 6.5 percent. The move by Canara Bank reflects the need for banks to manage their interest rates effectively in a competitive market environment.
The Indian government is considering allowing up to four nominees per bank account, as proposed in the Banking Laws Amendment Bill introduced by Finance Minister Nirmala Sitharaman. The Bill aims to amend key banking regulations to enhance customer convenience and redefine ’substantial interest‘ for directorships. These changes are intended to modernize the banking sector and adapt to evolving customer needs and preferences.
Despite a brief surge in deposit growth over credit offtake in mid-July 2024, Indian banks are facing a growing challenge as urban savers increasingly opt for higher-yield investments like mutual funds and stocks. This trend has raised concerns about the stability and growth prospects of bank deposits. HDFC Bank’s Managing Director highlighted the need for banks to adapt to changing consumer behavior and address the evolving investment landscape.
The NCLAT recently reserved its decision on SBI’s plea for an interim distribution of funds from the escrow account of Baleshwar Kharagpur Expressway Ltd. The ruling in April emphasized the priority of secured creditors like SBI in fund distribution. The delay in fund distribution underscores the challenges faced by banks in recovering debts and managing financial risks effectively.
RBI Governor Shaktikanta Das has cautioned banks about potential asset-liability risks if they rely too heavily on short-term bulk deposits. As households shift their savings to alternative investments, banks face challenges in funding, with deposit growth lagging behind loan growth. This warning highlights the importance of prudent risk management and strategic planning in the banking sector.
In conclusion, the banking sector in India is experiencing a period of transition and challenges as deposit growth slows down, credit demand fluctuates, and consumer behavior evolves. Banks must adapt to changing market dynamics, focus on deposit mobilization, manage interest rates effectively, and address potential liquidity risks to ensure stability and growth in the financial sector. Collaboration between banks, regulators, and policymakers is essential to navigate the evolving landscape and foster a resilient and sustainable banking ecosystem.