RBI's push for deposit growth: Examining the real issues facing banks

Some analysts contend that the deposit problem is entirely imaginary, but slow retail deposit growth and shifts in savings trends reveal valid concerns for banks' lending capacity

The Reserve Bank of India (RBI) governor has urged banks to increase deposit growth. The governor’s exhortations have been met with criticism and even ridicule from some commentators.

Some analysts contend that the deposit problem is entirely imaginary and that banks do not face any deposit constraint in the matter of making loans. They are wrong. The RBI governor’s concerns are well-founded, as a hard look at the critics’ propositions will make clear.

i. Savers, especially young savers, are turning to alternatives to deposits such as mutual fund and insurance products. That should not worry banks because