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Informist, Friday, Feb. 21, 2025

 

MUMBAI – The government's stake in public sector banks should come down significantly, in order to provide banks with more capital, Rajneesh Karnatak, managing director and chief executive officer of Bank of India, said at a conference organised by the National Stock Exchange of India on Friday. With credit growth remaining strong, banks are going to need more and more capital, which they can get if the government brings down its shareholding and dilutes the equity capital in state-owned banks, he said.

 

Banks are also facing a challenge from falling current and savings account ratios, but this phenomenon is common across the globe, Karnatak said. The current account savings account ratio of Indian banks is around 40%, compared to around 20?ross the globe. "As a country moves from emerging to developing to developed, customers become aware of more asset classes and higher interest rates in fixed deposits, so they tend to move their funds," Karnatak said.

 

Speaking at the same event, Hitendra Dave, the chief executive officer of HSBC India, said risks that arise out of flight from deposits cannot be simply negated by increasing liquidity coverage ratio. "Now with digitalisation, even corporates can withdraw any amount of money from their deposits at even 3 AM in the morning, so how can you prepare for that," Dave said.

 

Dave also said that Indian depositors fail to gauge the sense of credit risk while making a deposit because of how safe the banking system in India feels. "If a bank is offering 6% interest and another is offering 9%, depositors rush towards the other without thinking about credit risk at all and it is because how well-regulated the system is," he said.

 

Countering the point about liquidity coverage not being enough, Debadatta Chand, managing director and chief executive officer of Bank of Baroda, said that Indian banks have a huge advantage of holding the Statutory Liquidity Ratio and the Cash Reserve Ratio, which provide a cushion against a flight from deposits.

 

Currently, the Cash Reserve Ratio is 4% of time and demand liabilities, whereas the Statutory Liquidity Ratio is 18%. Cash Reserve Ratio is the percentage of money a bank has to keep with the RBI in the form of cash, whereas Statutory Liquidity Ratio is the proportion of liquid assets to time and demand liabilities.  End

 

Reported by Kabir Sharma

Edited by Ashish Shirke

 

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