RBI Governor Shaktikanta Das Talks About New Investment Trends at FE Modern BFSI Summit 2024
New Delhi [India], July 19: Households are now choosing capital markets over banks to invest their savings, said RBI Governor Shaktikanta Das during his address at the FE Modern BFSI (Banking, Financial Services, and Insurance) Summit 2024.
Governor Das explained that traditionally, banks were the primary choice for households to invest their money. However, there has been a noticeable change in consumer behavior, with a growing preference for capital markets and other financial intermediaries. He noted, “Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to the capital markets and other financial intermediaries.”
This trend indicates a broader diversification of household investments into mutual funds and other savings tools, moving away from traditional investment tools. The Governor stated, “While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds.”
Governor Das also pointed out that this shift in investment patterns has significant implications for the banking sector. Banks now need to explore alternative methods to bridge the gap between credit and deposits. He added, “On their part, banks have sought to fill the credit-deposit gap by increasing their reliance on other sources like short-term borrowings and certificates of deposit, etc. This increases their sensitivity to interest rate movements and poses challenges to liquidity management.”
The Governor further elaborated on the implications of the shift from CASA (Current Account Saving Account) deposits, stressing that banks must remain vigilant and adaptive. He stated that banks need to continuously focus on improving and refining their credit underwriting standards and the pricing of risks to maintain stability and profitability.
Reflecting on recent global banking events, Governor Das drew attention to the banking crises in the US and Switzerland in 2023, which highlighted the risks and vulnerabilities inherent in certain business models. He emphasized the importance of learning from these crises to enhance the resilience of the banking sector. “The banking crisis in the US and Switzerland in 2023 has again brought into focus the risks to banking stability from certain business models and their inherent vulnerability,” he added.
Doubts Revealed
RBI -: RBI stands for Reserve Bank of India. It is the central bank of India, which means it controls the money supply and interest rates in the country.
Governor -: The Governor of the RBI is the person in charge of the Reserve Bank of India. Shaktikanta Das is the current Governor.
Shaktikanta Das -: Shaktikanta Das is an Indian economist and the current Governor of the Reserve Bank of India.
FE Modern BFSI Summit 2024 -: FE Modern BFSI Summit 2024 is a conference where experts talk about Banking, Financial Services, and Insurance (BFSI) trends and issues.
Household investment preferences -: This means where families and individuals choose to put their money, like in banks, stocks, or insurance.
Bank deposits -: Bank deposits are money that people keep in their bank accounts for safety and to earn interest.
Capital markets -: Capital markets are places where people can buy and sell stocks, bonds, and other investments.
Financial intermediaries -: Financial intermediaries are institutions like banks, mutual funds, and insurance companies that help people invest their money.
Mutual funds -: Mutual funds are investment programs where many people pool their money to buy a variety of stocks and bonds.
Insurance funds -: Insurance funds are money collected by insurance companies from people to provide financial protection against risks like accidents or health issues.
Pension funds -: Pension funds are savings collected to provide people with income when they retire from work.
Short-term borrowings -: Short-term borrowings are loans that banks take for a short period, usually less than a year.
Certificates of deposit -: Certificates of deposit are savings certificates with a fixed interest rate and maturity date, issued by banks.
Interest rate changes -: Interest rate changes refer to the increase or decrease in the cost of borrowing money, which can affect how much people save or invest.
