Given the kind of unusual external sector headwinds due to rising rates and continued elevated inflation with its likely impact on domestic economy and the financial sector, banks will have greater challenges. They need to quickly rework their strategies rising from the ‘business as usual approach’.

Compared to last two years they are now in a different position with emerging resource imbalance. Deposit growth is sticky in single digit at 9.8 per cent while credit growth is at 14.4 per cent as of July 1 taking the credit-deposit (C-D) ratio to 73 per cent.

Going by simple arithmetic when the CRR is at 4 per cent and the SLR is at 18 per cent, the elbow room for C-D ratio can be 78 per cent. Beyond this benchmark, banks will have to depend on borrowings and alternative sources to fund increased demand for credit unless there is accelerated deposit growth.

Banks still have some time to plan their resource augmentation strategies. With borrowing costs going up, more after the August hike, they will face liquidity and price risks. Banks need to introspect into its deposit growth strategies and reinvent them to meet the burgeoning needs.

Depositor centricity

According to the RBI, banks are custodians of shareholders’ interest but more fundamentally the trust of depositors. Depositors are at the very core of the banking system. Banks should work out methods to create a depositor-friendly ecosystem.

It is a good development that the digital payment index of the RBI has moved up from 100 in March 2018 to 349.30 by March 2022. It is also estimated that 72 per cent of public sector banks’ (PSBs) transactions are getting done digitally. In the case of private banks, the digitalisation could be higher. Hence, the footfalls of customers in branches might have gone down but its connect with customers’ needs has not.

Due to stringent regulations, customer protection against cyber breach and speedy resolution of customer grievances are receiving greater attention with coordinated efforts of internal ombudsman. But a cultural shift is desired to tone up customer orientation at branches to shore up deposit growth which is unique to each bank.

The task ahead

In the milieu of digital penetration, banks should not lose focus on building a binding relationship with customers to continuously raise deposit resources. The data of December 31, 2020, indicates that 90 million customer accounts are dormant and have not been operated for over 10 years. It should be many times more if data is mined on inoperative bank account of two years and above. There are millions of good customers maintaining nominal balances, perhaps due to lack of efforts on the part of banks to reconnect with them. Intricate data analytics and follow-up action will be useful to target right customers to tap latent resource.

Not much innovation could be seen in deposit product re-engineering by PSBs while private banks, non-banks including fintechs are aggressive. Customers are glued to digital wallets to conduct their day-to-day financial transactions with float funds moving from one bank to another. It is time for some introspection to meet the needs of different segments of customers. HDFC Bank is said to have already started rolling out some short-term deposit products with differential interest rates.

Taking cue from the fact that the financial inclusion (FI) index of the RBI is 53.9 on a scale of 0 to 100 in March 2021, that still leaves a huge scope for penetration and mobilisation of deposits from hinterland, where people usually do not invest in other financial markets. PSBs have a unique positioning in this segment which could be explored using local familiarity. The basic savings bank deposit (BSBD) accounts have grown substantially in the last decade from 73.5 million to 663.1 million by March 2022.

Rural customers, housewives, senior citizens, with low-risk appetite and former employees having institutional bonding could be good target groups. Doorstep banking services could be provided where necessary. The recent temporary leeway granted by the RBI to mobilise NRE and FCNR (B) deposits could also add to the resources pool.

With many activities of branches moving to centralised technology backed outfits, greater focus can be on rendering qualitative customer service that can prevent customers from using banks merely as a conduit to invest in alternate investment products.

Fill Covid disconnect

Due to unknown apprehensions of customers and banks, their connect has weakened. It is time to introspect into the ground strategies of banks to capture back the attention of their existing and potential customers to mobilise deposits — a function that lost momentum during pandemic times due to thrust on contactless banking.

Banks should monitor, incremental rise in new deposit accounts, per account balances, its trends, reasons for low balances and find their service level expectations in digital ecosystem. It is necessary to realise that lack of seamless flow of resources could exacerbate risks and impinge upon the long-term efficiency of banks. Teams should work on engaging customers meaningfully, sharing care and concern. Customer care has a better impact than pricing.

Skills compatible to operate in a buyers’ market should be further reinforced with refresher programmes as Covid has created a void between banks and customers. Many employees have lost the urge to mix with customers for fear of virus transmission. Relationships need to be gradually rebuilt for lasting customer trust.

More aggressive and pragmatic strategies will have to be worked out to augment deposit growth winning back patronage of customers for greater stability. Retail loan growth that had occupied bigger space in recent years should not be allowed to dissipate attention towards depositors.

The writer is Adjunct Professor, Institute of Insurance and Risk Management. The views are personal

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