While there could be a debate regarding deposit funding loans vis-a-vis loans funding deposits, the current regulatory concerns stems from the fact that there could be structural changes happening which banks and non-banking financial companies (NBFCs) and other lenders need to recognize and accordingly devise their strategies, he said.

The Governor said that household and consumers, who traditionally rely on banks for parking or investing their savings, are increasingly turning to the capital markets and other financial intermediaries.

“While bank deposits continue to remain dominant as a percentage of financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to mutual funds, insurance funds and pension funds,” he said.

Banks, on their part, are filling the credit deposit gap by increasing their reliance on other sources such as short term borrowings and certificates of deposit. This increases their sensitivity to interest rate movements, and poses challenges to liquidity management.

The shift in deposit preferences from current account and savings account deposits (CASA) has various implications which banks need to keep in mind. “With credit growth remaining strong, banks need to continuously focus on improving and refining their credit underwriting standards and pricing of risks,” he said.