Short-term funding raises banking risks: RBI's Rao

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.

- Anshika Kayastha

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."