On November 16, the governor of the Reserve Bank of India, Shaktikanta Das, called a meeting with the heads of a few public sector banks and private sector banks to examine the sustainability of the country’s strong credit growth and determine whether any risks exist in the loan portfolios of the banks in light of the country’s rising interest rates. The RBI will also look into the reasons behind the weak deposit growth as well as the asset quality of consumer and MSME loans. This comes even as all scheduled banks have logged a double¬digit credit growth of 17.68% year¬on¬year (y¬o¬y) as on October 21, 2022, per RBI data.
The conference assumes significance because it occurs in advance of the Monetary Policy Committee (MPC) meeting, which is set for December 5–7. According to bankers, credit demand has come from a variety of sources, including retail, industry, MSME, agricultural, and related sectors.”Term loans were the category that had the fastest expansion in bank lending. According to a report in the RBI’s most recent monthly bulletin, “with economic activity picking up steam, growth in bank lending for working capital has also caught up in recent months reflecting an optimistic outlook for demand conditions.” Deposit growth has not kept up with the acceleration of credit expansion. As of October 21, 2022, banks reported a single-digit yearly growth rate for deposits of 9.22%.
The central bank will look into the details of interest rate transmission and asset-liability mismatches as the expansion of incremental lending and deposits is not increasing at the same rate. In light of the fact that banks are embracing digital innovations—including digital lending—in a big way and that the RBI has started a pilot program for central bank digital currency (wholesale segment), the central bank is expected to assess the sufficiency of their investments in IT infrastructure, their adoption of new technology, and the modernization of legacy IT systems.
The gathering will put a spotlight on the operation of the 75 Digital Banking Units (DBUs), which are dispersed throughout 75 districts and have been running for about a month. DBUs are brick-and-mortar locations that offer a variety of digital banking services, including opening savings accounts, checking account balances, transferring money, investing in fixed deposits, applying for loans, giving stop-payment instructions for issued checks, applying for credit/debit cards, paying taxes, paying bills, and making nominations, among other things. DBUs was established by banks to promote financial inclusion.
