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Short-term funding raises banking risks: RBI's Rao
Mint Mumbai
|January 18, 2025
Indian lenders' increasing reliance on short-term funding could have repercussions if market conditions deteriorate, hurting profitability and increasing loan rates for customers, according to Reserve Bank of India (RBI) deputy governor M. Rajeshwar Rao.
Different types of banks are relying more on inter-bank deposits and wholesale funding, Rao said at the 17th edition of Mint Annual BFSI Summit and Awards on 17 January (Friday). The reliance on short-term funding is reflected in average outstanding certificate of deposits (CDs) reaching levels last seen in 2012, he said.
"Institutionalizing deposits will bring specific challenges in asset-liability management for banks," he said. "Less reliance on retail deposits coupled with a greater share of funding from institutional sources will likely result in increased funding costs, which can, in turn, negatively affect profitability."
This story is from the January 18, 2025 edition of Mint Mumbai.
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