Savings shift from bank FDs to MFs: RBI governor cautions on liquidity issues | India Business News – Times of India

MUMBAI: RBI governor Shaktikanta Das on Friday cautioned that deposit growth, which has been lagging credit growth for a while, may expose banks to structural liquidity issues. Das said there has been a shift in customer preference from bank deposits to mutual funds, among other investments.
The governor said that while loans ultimately return to banks as deposits, the current regulatory concern stems from the fact that there could be structural changes happening which banks need to recognise and, accordingly, devise their strategies.

“Households are increasingly allocating their savings to mutual funds, insurance funds and pension funds for deploying their savings instead of banks. On their part, banks have sought to fill the credit deposit gap by increasing their reliance on short-term borrowings and certificates of deposit. This increases their sensitivity to interest rate movements and poses challenges to liquidity management,” Das said while speaking at an event organised by the Financial Express.
His concern over deposit growth comes at a time when bank deposits have been growing at 10.6% as against a 14% growth in bank credit during the first quarter of FY25.
Das said the banking crises in the US and Europe have underscored the need for prudent liquidity management and effective handling of interest rate risks. RBI is reviewing the liquidity coverage ratio framework to address emerging issues, emphasising the necessity for banks to manage their interest rate risk exposures diligently, Das said. Additionally, the rise in digitalisation demands robust cybersecurity measures.
Against the backdrop of rising cyber frauds, Das raised the issue of the rapid increase in the use of mule bank accounts to perpetrate digital frauds. Mule accounts are opened by third parties and used by fraudsters, either with or without consent, to park and extract the proceeds of digital frauds. The governor said these accounts expose banks not only to serious financial and operational risks, but also to reputational risks.
Das also said that nobody expects RBI to be a cheerleader for govt. He said that differences of opinion between fiscal and monetary authorities are inherent in the system.

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