Banks need to focus on deposits: Nirmala Sitharaman
NEW DELHI: Finance minister Nirmala Sitharaman on Saturday stressed upon the importance for the banks to focus on their primary banking activities, specifically in terms of collecting deposits and providing loans to those in need of financial assistance.
Speaking to the media following the Reserve Bank of India’s (RBI) board meeting, the minister said deposits and lending are akin to the two wheels of a cart, noting that “the deposit is moving slowly.”
To address the imbalance between deposits and lending, Sitharaman urged the banks to develop “innovative and appealing” deposit schemes to attract funds from the public. Meanwhile, RBI Governor Shaktikanta Das stated that interest rates are deregulated, allowing banks to increase deposit rates to draw in funds. “Banks are free to decide on their interest rates,” he noted.
“...More portfolios are available for more returns on money, that’s why retail investment in markets has gone up. When they have so many options, banks also have to make use of innovative portfolios for attracting investment and deposit mobilisation,” Sitharaman said.
The central bank’s governor pointed out that although interest rates are deregulated, banks frequently raise deposit rates to draw in funds. He mentioned that banks have increasingly relied upon short-term non-retail deposits and other financial instruments to address the growing demand for credit.
In addition, Sitharaman expressed her intent to have further discussions with the banks, focusing on priority sector lending and methods to improve deposit collection. “I will be meeting with the banks for various reasons, to take up the government’s priority sector lending areas, emphasise on some of the government schemes, and also in that process talk to them about how it is important for them to go back to collecting deposits the old fashioned way,” the finance minister stated.
Regarding the Sovereign Green Bond, the Governor announced that trading of these bonds is set to begin at the International Financial Services Centre (IFSC) in Gujarat in the latter half of the current fiscal year.
“We are in discussion with the IFSC, it will be operationalised very soon. I think in the second half of the current fiscal, it will be possible,” Das added.
When asked about the lukewarm response from investors to the issuance of green bonds, the RBI governor stated, “As the government’s debt manager, we are watchful of what exactly is happening, and if any action is required, we will interact with the government and deal with it.”
He added that a key announcement in this year’s budget focused on establishing climate taxonomy.
The Reserve Bank of India governor said that this will have a substantial long-term effect on the mobilisation of funds for the green sector, not just through green bonds but also in terms of overall financing for the green sector.
Banks are free to decide on their interest rates: Das
Reserve Bank of India Governor Shaktikanta Das stated that interest rates are deregulated, allowing banks to increase deposit rates to draw in funds. “Banks are free to decide on their interest rates,” the noted
‘Develop ‘innovative and appealing’ deposit schemes’
To address the imbalance between deposits and lending, Finance minister Sitharaman urged the banks to develop “innovative and appealing” deposit schemes to attract funds from the public