MUMBAI: RBI deputy governor Rajeshwar Rao said that shift in household savings to mutual funds and capital markets can change the character of deposits for banks having implication on cost of funds and margins for banks.
“Recent trends indicate a shift in household preference to financial assets for saving purposes leading to movement of these savings beyond traditional bank deposits towards capital market assets,” said Rao. He added that while the shift in preferences will not change he volume of deposits, the shift poses challenges for deposit management and could increase funding costs for banks. Rao was speaking at the Mint BFSI summit here on Friday.
“Customer behaviour and preferences are undergoing profound changes while global ecosystems and external factors such as third-party dependencies and technology shifts are growing increasingly complex, reshaping the business landscape.”
He also cautioned against over-reliance on wholesale funding, stating that “banks heavily reliant on wholesale funding are more vulnerable to rollover risks and outflows in times of economic stress.” He urged banks to “develop more sophisticated stress-testing methodologies that evaluate their ability to withstand extreme scenarios”, and to maintain adequate liquidity buffers to mitigate these risks. Rao also addressed the role of NBFCs in the financial system, acknowledging that “their activities also involve a significant amount of maturity, liquidity, and credit transformation.”
He stressed the need for NBFCs to diversify their funding sources.
