Concerns Over Bank Deposits and NBFCs: Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das Weigh In
Amid concerns of declining deposits at banks, CareEdge Ratings has highlighted potential issues for Non-Banking Financial Companies (NBFCs). The credit-deposit ratio (CD ratio), which measures how much of a bank’s deposits are lent out as loans, is a key concern.
The report by CareEdge Ratings noted that increased regulatory supervision would lead to higher compliance costs but emphasized its importance for sector stability. It also pointed out the need to monitor the end-use of funds by NBFCs and the challenges faced by smaller NBFCs and fintechs.
Recently, a report by the State Bank of India (SBI) showed that credit growth in Indian banks continues to outpace deposit growth. For the fortnight ending July 12, 2024, credit growth for All Scheduled Commercial Banks was 14% year-on-year, while deposit growth was 11.3%.
On August 10, Union Finance Minister Nirmala Sitharaman urged banks to focus on their core business and develop innovative products to increase deposits. She reiterated this during a press conference after a post-budget meeting with the Central Board of Directors of the Reserve Bank of India (RBI). RBI Governor Shaktikanta Das also expressed concern and mentioned that the central bank has alerted banks on this issue multiple times.
NBFCs play a crucial role in the financial ecosystem, growing at a Compound Annual Growth Rate (CAGR) of 14%. From FY17 to FY24, NBFCs have maintained a 21-24% share of credit among banks, NBFCs, and All India Financial Institutions (AIFIs). The report anticipates that the NBFC sector will grow by 17% in FY 2025.
Doubts Revealed
Bank Deposits -: Bank deposits are the money people keep in their bank accounts. It’s like when you put your pocket money in a piggy bank, but here it’s in a real bank.
NBFCs -: NBFCs stand for Non-Banking Financial Companies. They are like banks but they don’t have a full banking license. They can give loans and offer other financial services.
Nirmala Sitharaman -: Nirmala Sitharaman is the Finance Minister of India. She is responsible for managing the country’s money and economy.
RBI Governor -: The RBI Governor is the head of the Reserve Bank of India, which is the central bank of the country. Shaktikanta Das is the current RBI Governor.
CareEdge Ratings -: CareEdge Ratings is a company that evaluates the financial health of other companies and banks. They give ratings to show how safe or risky it is to invest in them.
Credit-Deposit Ratios -: Credit-deposit ratio is a measure of how much money a bank lends out compared to how much it has in deposits. It’s like if you lend out most of your pocket money and keep only a little for yourself.
Regulatory Supervision -: Regulatory supervision means keeping a close watch on companies to make sure they follow the rules. It’s like a teacher making sure students follow school rules.
FY 2025 -: FY 2025 stands for the financial year 2025. A financial year is a 12-month period used for budgeting and financial reporting.
