 "Budget 2025: Banks expect incentives to boost deposit mobilisation")
The banking sector is expecting measures from the government in the Union Budget 2025 to help them boost deposit mobilisation.
The industry body - Indian Banking Association (IBA)- has asked for certain tax rebates on the savings account in order to nudge customers to retain funds in this account. This comes under the persisting pressure on the low cost current account and savings account (Casa) of banks, a banking official said.
Most banks reported a fall in the share of Casa deposits in total deposits for the last few quarters.
“Given the challenges around mobilisation of deposits from the retail segment, some incentives for retail bank deposits could improve the ability of banks to garner such deposits and support supply of credit. This is especially important in the backdrop of the proposed changes in liquidity coverage ratio (LCR) framework as well as moderation in LCR of banks over past quarters. The moderation in LCR is an outcome of slower growth in retail deposits of banks,” said Sachin Sachdeva, vice-president, sector head - Financial Sector Ratings, ICRA.
The Reserve Bank of India (RBI) had proposed a draft circular on LCR which proposed an additional run-off factor of 5 per cent for retail deposits enabled with internet and mobile banking (IMB) facilities.
In addition, experts also hope that the budget will include tax incentives for wholesale loan and measures for acquiring bad loans from the banking system.
“Considering that the Indian banks have been slowing down on loan growth in wholesale sector, the sector would hope for tax incentives and other measures to boost the lending to this segment which has seen a very steady uptick in private credit flow to fill the gap,” said Kumar Saurabh Singh, partner at Khaitan & Co.
Credit growth to the industry, though improved from a year ago, is still in single digits. According to RBI data, loan growth to industry was at 8.1 per cent year-on-year (y-o-y) as on the fortnight ended November 29, 2024 compared to 5.5 per cent for the corresponding fortnight of the previous year.
“In addition, with the strength of government guarantee to back NARCL’s bid for acquisition of bad loans, the private sector ARCs would also hope for easing of norms and incentives for listing so as to create a deeper market and competitive landscape for acquisition of bad loans from the banking system,” Singh added.
Certain measures like additional Foreign Direct Investment (FDI) in public sector banks, mergers of co-operative banks and additional tax rationalisation for foreign banks are expected to nudge the long-term growth of the banking sector.
“I am looking for the (Foreign Direct Investment) FDI limits for public sector banks. Currently, it is kept at about 20 per cent and a higher limit would give better capitalisation and stronger governance,” said Vivek Iyer, partner, Grant Thornton Bharat LLP.
“Secondly, there needs to be a proper plan around co-operative bank consolidation. Thirdly, I think there needs to be tax rate rationalisation for foreign banks. We need foreign bankers and the size and scale to be relevant to the country,” said Iyer.