Swaminathan J, Deputy Governor at the Reserve Bank of India, highlighted a worrying trend among banks: their growing dependence on bulk deposits. These deposits tend to carry higher costs, impacting the banks' profit margins. Speaking at an economic summit organized by the State Bank of India, Swaminathan emphasized the need for banks to better handle their interest rate risks. He cautioned against over-reliance on these costly bulk deposits, particularly noting the challenges they pose during periods of declining interest rates.
According to Swaminathan, managing these substantial, long-term deposits during rate decreases could significantly reduce profits and margins for banks. He pointed out that the primary impact would be felt on net interest margins, which would ultimately erode profits.
Furthermore, the RBI's scrutiny has revealed that numerous banks are falling short in their allocated spending for IT infrastructure. Swaminathan highlighted this as a significant risk, emphasizing the importance of sufficient investment in technological advancements.
In addition to financial concerns, Swaminathan raised issues concerning poor governance and management practices within banks. These factors, combined with the challenges posed by excessive reliance on high-cost deposits, could potentially undermine the stability and profitability of banks in the long run.
Banks' Balance Sheets Grew by 12.2% in 2022-23, says RBI Report
