Informist, Wednesday, Sep 18, 2024

--AMFI Chalasani: Weak bk deposit growth not due to higher MF inflows
--AMFI Chalasani: To launch special products for top-end clients soon

MUMBAI – Indian banks are not experiencing weak deposit growth due to increased participation by retail investors in mutual funds, Venkat N. Chalasani, chief executive of the Association of Mutual Funds in India, said today.

"It's a liquidity leakage that's happening. It's not because of the movement into mutual fund investment," Chalasani said on the sidelines of a financial market conclave organised by the Bengal Chamber of Commerce and Industry.

Indian banks are faced with weakness in their deposit growth even as demand for loans remains robust. As per latest data from the Reserve Bank of India, banks' loans were up 13.6% on year as on Aug 23, while deposit growth was 10.8%.

Economists are divided over the reasons behind the weak deposit growth and whether it can impact credit growth in the future. However, RBI Governor Shaktikanta Das said last month that "alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth." As such, this could lead to liquidity issues for banks, and they should look into new innovative products to bring household deposits back into bank deposits.

According to Chalasani, deposit growth has been weak due to higher leakages from the banking system. "The first leakage that is happening, of course, is because of RBI. They've increased the CRR (Cash Reserve Ratio) from 4% to 4.5%. So 50 basis points of the total NDTL (net demand and time liabilities) has gone into the CRR," he said.

The RBI increased banks' CRR to 4.50% from 4.00% in May 2022. The central bank had estimated then that it would result in the draining of 870 bln rupees of excess liquidity from the banking system.

In addition, Chalsani also cited higher amounts of cash held by the public, which he estimated at around 20 trln rupees, and the just-in-time release of funds by the government as factors behind weak deposit growth.

Meanwhile, Chalsani said AMFI is planning to come out with products that cater to wealthy investors too. This comes amid discussions over the introduction of a "micro" Systematic Investment Plan, or SIP, starting from 250 rupees. End

Reported by Kabir Sharma

Edited by Aditya Sakorkar

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