The Indian banking sector is facing a significant challenge as the growth of deposits has slowed down compared to credit, creating a widening gap between the two. This has raised concerns for the government and the Reserve Bank of India, who have urged banks to focus on innovative strategies to attract more deposits. One of the main reasons for this divergence is the increasing trend of Indian households investing their savings in capital markets, resulting in a lower inflow of savings into banks. As a result, banks are looking for ways to address this issue and mitigate the risk of asset-liability mismatch.
The Widening Gap Between Deposits and Credit in India's Banking Sector
Background:
The Indian banking industry has been a key driver of economic growth in the country, playing a crucial role in mobilizing savings and providing credit to businesses and consumers. However, in recent years, the sector has faced a growing challenge as the growth of deposits has slowed down while credit growth has continued at a strong pace.
This divergence has created a widening gap between deposits and credit, raising concerns about the stability and soundness of the financial system. It has also put pressure on banks to find innovative ways to attract more deposits.
Reasons for the Divergence:
Several factors have contributed to the slowdown in deposit growth, including:
Consequences of the Divergence:
The widening gap between deposits and credit poses several risks to the banking sector, including:
Government and RBI Response:
Recognizing the significance of the issue, the Indian government and the Reserve Bank of India (RBI) have taken several steps to encourage deposit growth and address the divergence. These include:
FAQs:
1. What is the asset-liability mismatch risk faced by banks?
Answer: Asset-liability mismatch occurs when banks have a significant portion of short-term deposits but provide long-term loans. This can create a liquidity risk if depositors withdraw their funds before the loans mature.
2. Why are Indian households investing more in capital markets?
Answer: Higher returns, lower interest rates, and increased financial literacy have led Indian households to invest more in stocks and bonds, reducing the flow of savings into banks.
3. What are the consequences of a prolonged asset-liability mismatch?
Answer: Prolonged asset-liability mismatch can weaken banks' balance sheets, increase the risk of liquidity problems, and contribute to systemic financial instability.
4. What is the government doing to address the widening gap between deposits and credit?
Answer: The government is implementing measures to lower interest rates, promote financial inclusion, and encourage deposit growth through innovative deposit schemes.
5. What is the role of the RBI in addressing the deposit growth slowdown?
Answer: The RBI plays a crucial role in regulating the banking sector and setting monetary policy. It has lowered interest rates to make bank deposits more attractive and has urged banks to adopt innovative strategies to attract more deposits.
After seven long years of perseverance and refinement, Shantanu Deshpande, founder and CEO of Bombay Shaving Company, announced on X (formerly Twitter) that his company has finally secured a deal with top hotel chain Taj Hotels. Despite initial rejection and setbacks, Deshpande and his team never gave up and worked tirelessly to align their offerings with Taj's high standards. Deshpande also shared valuable lessons he learnt during the seven-year process, including the importance of price, customer preferences, supply chain readiness, and the power of perseverance.
The Cabinet Committee on Economic Affairs has approved the PAN 2.0 project, worth Rs 1,435 crore, to enhance the taxpayer experience. The new version aims to streamline businesses and citizen-centric operations by using technology-driven transformation and a QR code feature. Union Minister Ashwini Vaishnaw explains that there will be no need for individuals to modify their current PAN and the new card will be introduced as an upgrade. With over 78 crore PAN cards issued to date, this development is expected to benefit the majority of individuals and small businesses.
National Milk Day commemorates the birth anniversary of the "Father of the White Revolution" in India, Dr. Verghese Kurien, who played a pivotal role in transforming the country into the largest producer of milk globally. This day celebrates the importance of milk as a vital source of nutrition and its economic contributions, with a focus on Dr. Kurien's initiatives under Operation Flood that revolutionized the dairy industry and empowered millions of rural farmers. This year, on November 26, various dairy institutions across the country will honor Dr. Kurien's legacy and discuss policies and innovations to further strengthen the dairy sector.
Shashikant Ruia, Chairman of Essar Group, passed away at the age of 81, leaving behind a legacy of unparalleled contributions to the business world. Under his visionary leadership, Essar group diversified and grew into a global conglomerate, generating revenues of US $14 billion. Ruia's commitment to community upliftment and philanthropy also left a lasting impact on millions of lives. His demise has left a void in the business world that will be hard to fill.
A detailed analysis of how the BJP has performed in Maharashtra and Jharkhand, in the 25 aspirational districts designated by the Niti Aayog. According to a report, the performance of the BJP has not been very promising in these districts, raising questions about the party's policies and initiatives towards development and progress. As the elections approach, this report highlights the importance of addressing the issues faced by the people in these regions, and the need for better policies and strategies to address them effectively.
The food and grocery delivery company Swiggy Ltd is set to debut on the stock exchanges with an initial public offering of Rs 11,300 crore, making it the second-largest issue in the primary markets this year. Analysts are predicting that Swiggy's shares may see a flat or negative listing, and are advising investors who have not been allotted shares to wait for the share price to settle before buying. Despite being a major player in the e-commerce and food delivery market, Swiggy's IPO received a sluggish response, with concerns over its negative cash flow business model and high competition leading to lackluster interest from non-institutional investors and retail investors.
The allotment of shares for the highly anticipated NTPC Green Energy IPO has been finalized, with investors receiving bank debit messages. The IPO was oversubscribed by 2.55 times, with shares set to list on the BSE and NSE on November 27. In the grey market, the stock is currently trading at a Rs 4 premium, with experts predicting further improvements as the Indian stock market sees a rally. Interested investors can easily check the IPO allotment status online using the BSE, NSE, or Kfin Technologies' portals.
Shashikant Ruia, one of the founders of the Essar Group, passed away at the age of 81 after battling an illness. Along with his brother Ravi, he successfully built the Essar Group into a global business empire in various industries. The funeral procession will be held on Tuesday towards the Hindu Worli Crematorium. Ruia's passing marks the end of an era for the first-generation entrepreneur and industrialist.
The Mumbai Indians emerged as the clear winners of the IPL 2025 mega auction as they made strategic picks and successfully built a team around their retained core. With star players like Hardik Pandya, Rohit Sharma, Suryakumar Yadav, and Jasprit Bumrah, MI added valuable assets in Trent Boult, Deepak Chahar, Reece Topley, and Will Jacks to strengthen their fast bowling and batting departments. The addition of former Indian cricketer Sachin Tendulkar's son Arjun Tendulkar at his base price of Rs 30 lakh also made headlines. Here is the full squad list for Mumbai Indians after the mega auction.
India secured the top spot in the World Test Championship standings with a percentage of points won of 61.11%. This was achieved after their 295-run victory over Australia in the first Border-Gavaskar Test in Perth. Australia, who were previously at the top, have slipped to second position, while India needs three wins in the remaining four matches to secure a spot in the WTC final. The victory is significant for the team, as it is their biggest Test win in Australia.