RBI wants focus on deposits

Interest rates are likely to rise if deposits do not match high credit growth, the Reserve Bank of India (RBI) Deputy Governor, Rakesh Mohan, today said. He said the high credit growth witnessed in the recent years had not been matched by adequate deposit growth.

"If deposit growth does not match credit growth, excess demand would inevitably lead to increase in real interest rates leading to further possibility of financial exclusion," he pointed out in a special address on 'Economic Growth, Financial Deepening and Financial Inclusion' at the Bankers Conference 2006 here today.

Mohan said banks needed to mobilise resources from a wider base. In the current phase of rising incomes and expanding economic activities, Mohan said the demand for financial services, both for savings as well as production purposes, would be greater than has been the case in the past.

There would also be many new entrants in need of financial services, which have not hitherto been served.

He said the Reserve Bank of India would shortly issue guidelines for implementation of the Credit Information Bureau Act, which was passed by Parliament last year.

The implementation of the Act would enable availability of credit histories of both individuals and small businesses and thus significantly help in reducing transactions and information costs of banks, he said.

Mohan said the legislation would also help in spreading a good credit culture among borrowers besides helping bankers in amassing and managing risk at low cost.