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The diverging paths of deposits and credit: A balancing act for Indian banks

The article from Financial Express discusses the contrasting trends in deposit and credit growth within the Indian banking sector. It highlights that while credit growth has been robust, deposit growth has lagged, creating a significant gap. This disparity is attributed to several factors including a shift towards alternative investment options like mutual funds and insurance, which offer better returns than traditional bank deposits. The article notes that banks are now compelled to offer higher interest rates to attract depositors, which in turn squeezes their net interest margins. Furthermore, the piece explores how this imbalance affects liquidity, with banks increasingly relying on bulk deposits and short-term borrowings to meet credit demand. It also touches upon the RBI's concerns about potential asset-liability mismatches and the need for banks to manage their balance sheets more prudently to ensure financial stability. The article concludes by suggesting that banks might need to innovate in deposit mobilization strategies to align deposit growth with credit expansion.

Read the Full The Financial Express Article at [ https://www.financialexpress.com/business/banking-finance-the-diverging-paths-of-deposits-and-credit-a-balancing-act-for-indian-banks-3676827/ ]