Mutual funds attracting household savings, impacting bank liquidity

In a significant trend, households are increasingly turning to capital markets and other financial intermediaries to invest their savings, rather than traditional banks.

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This shift was highlighted by RBI Governor Shaktikant Das during his address at the FE Modern BFSI Summit 2024 on Friday.

Governor Das noted that households are diversifying their investments into mutual funds, insurance funds, and pension funds, moving away from traditional investment tools. While bank deposits remain dominant, their share has been declining as households allocate their savings to alternative investment avenues.

This trend has significant implications for the banking sector, as banks need to explore alternative methods to bridge the gap between credit and deposits. Governor Das pointed out that banks have increased their reliance on short-term borrowings and certificates of deposit, making them more sensitive to interest rate movements and posing challenges to liquidity management.