Uday Kotak
Asia’s biggest rich banker Uday Kotak has told about a major problem in the banking industry. He expressed concern over the growing deposit crisis. Uday Kotak said that it is becoming a major challenge for banks. He said that the banking industry is facing the threat of declining margin. Due to slow growth of cheap retail deposits, banks are resorting to expensive wholesale deposits and lending on negative margins. Kotak wrote in a post on the social media platform X, “If the deposit shortage continues, it will endanger the banking business model.”
Decreasing saving habit
Actually, for the last few years, the habit of savings among people has been ending. People earn and spend. A large number of youths are doing the same. Due to the arrival of new mediums of investment, the trend of depositing money in banks is decreasing. Earlier people used to keep large amounts in their savings accounts and in FD. Now this trend has decreased. Due to this, retail deposit growth in banks is decreasing. In such a situation, banks have to take a wholesale deposit to give loans, on which more interest has to be paid. Due to this, the margin of banks is decreasing.
Profit is not available due to growing
Kotak said that there are more expenses on the wholesale deposit besides 8%. For example, the cash reserve ratio i.e. CRR, CRR means that banks have to keep some part of their deposits with RBI, on which they do not get any interest. Apart from this, there are also costs like Statchutory liquidity ratio. SLR means that banks have to invest some part of their deposit in government bonds. There are also targets of deposit insurance and priority sector. Deposit insurance means that if the bank sinks, the depositors will get some part of their deposits. The goal of the priority sector means that banks have to give some part of their loan to certain sectors. Kotak said that despite these costs, banks are giving home loans at a floating rate of 8.5%, while borrowing at 9%, resulting in a negative spread of 0.5%.
Expected to fall in repo rate
Kotak said that the entire banking system has slow growth of retail deposits. On the other hand, repo rates are expected to fall further, so managing both cost and loan rates will be a big challenge. Most economists have estimated a reduction of 0.25 per cent in the repo rate in April. Earlier in February, the RBI had reduced the repo rate by 0.25 per cent to 6.25%.
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