Nirmala Sitharaman Urges Banks To Innovate Deposit Products To Boost Savings

During the announcement of the bi-monthly monetary policy earlier this week, the RBI Governor voiced his concerns about the growing mismatch between deposits and lending within the banking sector

Union Finance Minister Nirmala Sitharaman called on banks to develop and introduce innovative and appealing schemes designed to attract and mobilise deposits. He also added that the banks need to put focus on 'core banking.'

Speaking to the media following the Reserve Bank of India’s board meeting, she described deposits and lending as the two essential wheels of a cart, noting that the deposit wheel is currently moving slowly. She emphasised that banks must concentrate on their core functions—mobilising deposits and providing loans to those in need—to ensure balanced and effective financial operations. "Both RBI and the government want Banks to focus on core banking," Sitharaman said on Saturday.

To address the imbalance between deposits and lending, Sitharaman urged banks to develop "innovative and attractive" deposit schemes that mobilise funds from the public.

RBI Governor Shaktikanta Das explained that interest rates are deregulated, which allows banks to adjust deposit rates as needed to attract more funds. "Interest rates on deposits and lending are deregulated. Banks are free to decide on interest rates", Das added to FM’s point.

During the announcement of the bi-monthly monetary policy meeting earlier this week, the RBI Governor voiced his concerns about the growing mismatch between deposits and lending within the banking sector. He noted that banks have increasingly relied on short-term non-retail deposits and various other liability instruments to address the rising demand for credit. 

This trend reflects the sector's struggle to balance its deposit base with its lending needs.

Das warned that "may potentially expose the banking system to structural liquidity issues. Banks may, therefore, focus more on the mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network."

He advised banks to focus on attracting household savings by introducing innovative financial products and making better use of their extensive branch networks.