BANKS SHOULD LOOK TO MOBILISE MORE RETAIL DEPOSITS: RBI

Banks should focus on garnering more retail deposits and reduce overdependence on wholesale deposits, as effective liquidity management is one of the conditions of the Basel III regulatory standard on bank capital adequacy and liquidity

While systemically the banking industry is well placed, there could be cases where individual banks may have higher share of wholesale deposits, said Mr Anand Sinha, Deputy Governor, Reserve Bank of India.

“One of the reasons for the economic crisis was the liquidity mismatch. In the US, long-term assets were being funded by overnight repo,” Mr Sinha said.

The RBI is in the process of finalising guidelines for Indian banks which will include liquidity management measures as mandated by Basel III norms.

It is also working on new guidelines for provisioning, under which banks will have to make countercyclical provisioning or increase provisioning during good times.

TRANSACTION COSTS

Mr Sinha urged banks to reduce transaction costs by leveraging technology more efficiently.

If banks have to go to the hinterland, it may not be very profitable unless they reduce transaction costs.

Therefore, there is no alternative but to leverage technology, the Deputy Governor explained.

When asked about the dip in food inflation to 9.03 per cent during the week ended August 6, from 9.9 per cent in the previous week, Mr Sinha said the RBI will look to a secular trend in inflation. “Tackling inflation is a prime concern,” he said. He, however, refused to comment on the likely policy action by the central bank.

SOURCE: http://www.thehindubusinessline.com/industry-and-economy/banking/article2369935.ece