The direction of monetary policy 2024-25 is on expected lines to retain the repo rate intact at 6.5 per cent and signalling continuing policy stance to remain accommodative. The forward guidance and the new range of regulatory measures provides strategic guidance to banks to rework their business and operational strategies for near term.

In the given state of buoyancy and transparency in the interest rate trajectory, banks on very strong footing can work out resource augmentation strategies to finance the burgeoning credit needs of multiple sectors of the economy. The total flow of resources to the commercial sector from banks and other sources at ₹31.2-lakh crore during 2023-24 is significantly higher than that of last year at ₹26.4-lakh crore.

Deposit-credit growth

But in this equation, banks have to reflect their role when the deposit growth continued to trail behind at 13.5 per cent as of March 22, 2024, during the current fiscal compared to credit growth at 16.3 per cent. If the trend continues, banks will be constrained in lending despite having decadal low NPAs and comfortable capital adequacy ratio.

Banks can always draw comfort from the fact that the deficit in system liquidity is getting phased out due to proactive RBI interventions.

Going forward the onus of banks will be to innovate strategies to augment their resources to facilitate acceleration of flow of credit to industry.

With non-banks becoming more aggressive in sharing domestic savings through fixed deposit offerings, banks will have to diversify and design innovative liability products with a right fusion of liquidity, return and convenience.

Customised offerings

Banks with a vast command on demand deposits can always articulate differentiated products where the competition is among banks but not beyond banks. Given the demographic shift of customer base with millennials and Gen Z occupying bigger space, banks will have to shift their gear to customise offerings to them.

The ongoing policy reforms of RBI to deepen digital banking though UPI could be built into liability products to make them more attractive.

The long-term vision should be on building a perpetual deposit base making room for usual volatility and building resilience for unexpected customer behaviour.

Ensuring high quality customer service with built in faster redressal of grievances and assuring robust cyber security in digital mode will be the right recipe to bridge the gulf between deposit and credit growth.

The writer is Adjunct Professor, Institute of Insurance and Risk Management – IIRM. Views expressed are personal