Need to explore tax benefits, other options to aid bank deposit growth: SBI MD

Mumbai: The government needs to explore options such as tax benefits to encourage individuals to keep more money in bank deposits, said Ashwini Kumar Tewari, managing director of State Bank of India, adding to the chorus on India’s worst deposit crunch in two decades.

“We have to think through various things, what are the options. Taxation benefits could be given… Some alignment could be done with investments linked to deposits,” Tewari said at a BFSI summit organised by CareEdge Ratings on Monday. 

“There could be talk about SLR, etc. Can (banks) get some dispensations there? Because banks continue to fund almost 90% of economic activity and as long as that is the case, bank deposits are really important,” he said.

SLR, or the statutory liquidity ratio, is the minimum percentage of deposits that a bank has to maintain as cash, gold or securities, which would have an impact on its lending rates.

Indian banks have been struggling to attract deposits even as customers have been borrowing heavily, leading to the highest credit-deposit ratio in the banking system in at least 20 years. Last week, Reserve Bank of India governor Shaktikanta Das warned that this could “potentially expose the system to structural liquidity issues”.

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Tewari said a relaxation in the mandated cash reserve ratio for banks could also help narrow the gap between credit and deposit growth, and that discussions are on between industry players and the regulator. CRR is the percentage of money a bank has to keep with RBI in the form of cash.

“We have not sought any formal dispensation, but it is a conversation we continue to have. Of course, I don’t think there is any move to do this at the moment,” he said.

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Tewari clarified that while SBI, India's largest public sector bank, does not need such a dispensation given its comfortable liquidity position and 2-3% higher statutory liquidity ratio, a cut would help other banks that have a credit-deposit ratio of 80-90%.

The central bank had cut the CRR by a sharp 100 basis points at the beginning of the pandemic in March 2020. It hiked the rate to 3.5% in 2021 and 4.5% in May 2022. RBI has hiked the repo rate–the rate at which RBI lends money to banks–by a cumulative 250 basis points since May 2022.

Tewari said heavy competition on lending was leading to aggressive pricing and lower spreads. On the other hand, banks are seeing a significant shift in customer deposits from current and saving accounts (CASA) to higher yielding fixed deposits (FDs) and other investment avenues such as mutual funds and equities.

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Although banks’ CASA ratios are at around 40%, the actual share of low-cost CASA deposits available with banks is much lower at just over 30% given the high savings rates banks are offering on certain deposit buckets.

“We are at the seventh or eighth quarter when the bank deposit is lagging loan growth, not only in percentage terms but also in absolute terms. This puts a lot of pressure on the funding requirements for banks,” Tewari said.

He also called for provisions to control the number of lenders non-banking financial companies, or NBFCs, can raise funds from, to better manage information flow and assessment of partner lenders.

He also said the banking sector needs to work on mitigating new kinds of risks such as climate risk. “We (SBI) are on this journey and will come out with our own measurements of risks and emissions together, so that we have some idea where that risk sits and take some measures alongside,” he said.

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