RBI deputy governor flags rising tendency of banks to depend on bulk deposits
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Urging banks to effectively manage their interest rate risks, the Reserve Bank of India (RBI) Deputy Governor Swaminathan J has flagged rising tendency of banks to depend on bulk deposits, which attract higher cost and therefore affects margins. He said they will have a tough time if they depend too much on higher-priced bulk deposits.
Further, Swaminathan noted that when interest rates decline, these long-term large deposits will still have to be managed and that can lead to lower profits and lower margins, adding that the biggest impact will be on net interest margins, which will erode profits.
The RBI deputy governor also noted that the regulator has found that many banks are not spending even the budgeted amount on IT, flagging this as a major risk. Swaminathan also raised the issue of poor governance and management practices at bank
