Take banking to uncovered areas, says RBI

The Reserve Bank of India (RBI) has asked banks to step up efforts for financial inclusion to cover underbanked areas and increase pool for funds, which remain with them longer.

"The banks have to combine profit motive with certain social functions. The financial system cannot leave out certain sections of the society," RBI Executive Director Anand Sinha said, while addressing the Second Annual Risk and Compliance Summit organised by the Indian Banks' Association.

Pointing out that such efforts (financial inclusion) improve the bank's balance-sheet, the RBI official said, "In the long run, banks will get stable source of funds."

The funding crisis plauging many international banks now is largely due to less stable core deposits. They have been funded through volatile deposits.

At present, the Indian banking entities are engaged in stiff competition to raise resources for business growth. This has pushed the rates for bulk deposits as well as term deposits.

Some banks are offering close to 10 per cent (per annum) interest on short-term deposits. Consequently, the share of low-cost deposits (savings and current account) has declined over period.

Also, there has been a shift (decline) in the average maturity period for deposits. The large chunk of deposits (retail and bulk) have maturity of less than one year.

RBI has in the past cautioned banks against overdependence on the high-cost bulk deposits, which is sensitive to even marginal rise in rates (read they move swiftly from bank to bank).