RBI and banks discuss lagging deposit growth and asset quality

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Reserve Bank of India Governor Shaktikanta Das met on Wednesday with heads of public and private sector lenders to discuss various issues including slowing deposit growth versus credit quality and assets. Although banks quickly passed on repo rate hikes to borrowers, the rise in deposit rates did not keep pace.

According to the latest RBI data, bank credit grew by 18% and deposits by 9.45% in the fortnight ending October 21. During the meeting, issues such as investments in IT infrastructure, adoption of new era technology solutions and operation of digital banking units were also discussed, RBI said in a statement.

While stating that India’s banking sector has remained resilient and continued to improve across various performance metrics, Das advised banks to remain alert to macroeconomic developments, including global spillovers. He also asked banks to proactively take mitigating measures so that the potential impact on their balance sheets is minimized and risks to financial stability are contained. RBI Deputy Governor MK Jain and some senior central bank officials also attended the meeting.

The meeting comes ahead of the monetary policy review scheduled for December.

Several analysts believe that RBI will reduce its pace of rate hikes after CPI inflation eased to 6.77% in October. It is likely to raise the repo rate by 35 basis points in the policy, they said. Since May this year, RBI has raised the repo rate by 190 basis points to 5.90%.

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