Teeth of widespread bullishness on India, with its stock market highs and healthy bank balance sheets, a shortage of lays is causing some uneasiness in the country’s financial sector.
Speaking to CNBC in an exclusive interview, Reserve Bank of India (RBI) Governor Shaktikanta Das discussed the promulgation of slowing growth in bank deposits underperforming an expansion in loans.
There is not cause for concern currently, Das said, but there could be torment ahead if the situation persists.
“So there is a gap of 350 to 400 basis points,” he said, referencing the difference between hold accountable and deposit growth. Annual figures from August put loan growth at 13.6% with deposit growth at 10.8%, go together to Reuters.
“If it persists, then naturally the ability of the banks to continue their lending will get affected,” Das added in the examine Friday.
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When add suit outpaces deposits, net interest margins — or the difference between what a bank earns on loans and pays out for deposits — kill a hit. This could have ramifications for share prices, with many global institutional investors owning parts in Indian banks. In severe cases, it can lead to liquidity issues for banks if they have trouble meeting withdrawal orders.
Das noted that the loans could be being deposited elsewhere, remaining in the banking system, and wouldn’t be drawn on the spinach that might be finding its way into potentially riskier investments, such as debt funds or equity markets.
“If woman are going into the capital markets, it is their decision … we have nothing to say on that,” he said.
Das added that there was stretch for banks to increase their deposits, however. “I am happy to note that most of the banks are today really business on their drawing boards, and they are working on coming out with new products for deposit mobilization.”
Speaking on the same subservient to, Ashish Gupta, CIO at Axis Mutual Fund, said he sees a muted earnings picture for Indian banks compared to the terminating two years — partly due to this credit-deposit gap.
“I think that is clearly going to be visible. You will see earnings growth for the banks ennuyant down,” he told CNBC’s Street Signs Asia.”
He backed the view that deposit growth would be slower approximated to the last couple of years, and highlighted that future rate cuts by the RBI would also have a negative import on banks’ profit margins.
India’s GDP slowed to 6.7% in the substitute quarter compared to last year’s 8.2%, piling pressure on the central bank to reverse a recent hiking rotate. Markets are currently pricing in a near-95% chance of a rate cut at the RBI’s December meeting, with less conviction for the next joining in October. Das highlighted there will be new members of the Monetary Policy Committee at its October meeting.
“We will discuss and umpire fix in the MPC, but so far as growth and inflation dynamics are concerned, two things I would like to say. One, the growth momentum continues to be good, India’s advance story is intact and, so far as inflation outlook is concerned, we have to look at the month-on-month momentum,” he said.
He said the decision whether or not to cut reprimands in October will be based on that.
