The Hindu Business Line : Step up deposit mobilisation efforts: Rakesh Mohan

The Reserve Bank of India Deputy Governor, Dr Rakesh Mohan, advised banks to step up deposit mobilisation efforts to sustain the current pace of credit growth.

Addressing Bancon 2006, Mr Mohan said that bankers should shift focus from bulk deposits. These bulk deposits would shortly hit a ceiling and adversely impact balance sheet management. Besides, this would also lead to pressure on real interest rates, he added.

He said that financial inclusion was essential to sustain the current growth trajectory. The efforts inclusion should involve are raising credit delivery to deposit mop-up efforts from rural areas. Besides, he added that the farm credit to GDP ratio needed to step up from the current level of 17 per cent.

Growth trend

The current growth process is not a flash in the pan. It is exhibiting signs of sustainability along with financial stability, notwithstanding pressures from unforeseen external shocks, he said.

Mr Mohan, while conceding that the growth trend of the Indian economy appeared to indicate the beginning of a new phase of higher growth, said "it possibly signalled financial deepening of the system.''

Alluding to his remarks at an earlier bankers' conference, Mr Mohan said banks had clearly taken to heart his remarks on "lazy banking'' on the asset creation side, going by the average loan growth of 30 per cent during the past three years. However, they had not matched this "creditable performance'' on the liability side. He said, "Dare I repeat the same expression!''

Credit expansion

Flagging a perspective on greater credit expansion, he said, improvements in rural infrastructure, improved connectivity through roads and telecommunications, and construction of warehouses would lead to better supply chain management and eventually lead to greater demand for banking activity in rural areas.

Urging banks to lend to first time entrepreneurs despite the risk of failure, he said they must tone up their risk assessment and risk management capacities.

He said that there would be a number of first time financial savers as poverty levels decline and households have greater levels of discretionary income. They would need easy access to formal financial systems to get into the banking habit.

Mr Mohan said, "Banks will need to go to their customers, rather than the other way around.''

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