Household savings shifting from banks to mutual funds; impacting liquidity: RBI Governor Das
RBI Governor Urges Caution Over Rapid Expansion in Home and Gold Loan Top-Ups
Households in India are increasingly opting for capital markets over traditional bank savings, according to Reserve Bank of India Governor Shaktikanta Das. Speaking at the FE Modern BFSI Summit 2024 on Friday, Governor Das highlighted a significant shift in consumer investment behaviour.
More people are choosing mutual funds and other financial intermediaries for their savings, nowadays. Historically, banks have been the primary destination for household savings deposits. However, Governor Das pointed out that this trend is changing. “Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to the capital markets and other financial intermediaries,” he said.
Despite bank deposits remaining a significant part of household financial assets, their share is declining. More households are now allocating their savings to mutual funds, insurance funds and pension funds. This shift in investment patterns has critical implications for the banking sector.
Governor Das emphasized that banks need to find new strategies to manage the widening gap between credit and deposits. He noted the transition from CASA (Current Account Saving Account) deposits and stressed the importance of banks being adaptive and vigilant. Banks should continually refine their credit underwriting standards and risk pricing to maintain stability and profitability.
He also referred to past global banking crises. These crises in the US and Switzerland in 2023 had exposed vulnerabilities in certain banking business models. Governor Das concluded by urging the banking sector to learn from these crises to enhance its resilience and ensure long-term stability.
