Banks need to look beyond bulk deposits to fund loans

RBI said that banks must reduce their reliance on wholesale deposits to fund loans and be watchful of the risks associated with their advances and trading exposures amid interest rate fluctuations.

“Considering the dynamic nature of the interest rate risk, banks may have to address both trading and banking book risks, especially in the light of moderating net inter margins,” the RBI said in its annual report for FY24. “On the liabilities side, it is imperative to focus on diversification of deposit sources as reliance on bulk deposits heightens sensitivity to interest rate fluctuations,” it added.

The RBI also pointed out that regulatory measures aimed at slowing consumer lending have worked.