Banks should not expect to profit from UPI transactions

Re-imagining deposits is easier said than done, as savers always want higher returns. Do you think there is room for tax breaks on deposits?

- M NAGARAJU, SECRETARY, DEPARTMENT OF FINANCIAL SERVICES, MINISTRY OF FINANCE

This has been a long-standing demand of the bankers. If you look at the western banking models, deposits are not the key factor for growth. Banks there raise funds through different methods and then lend. They can raise billions of dollars in a day due to the strength of their balance sheets, and also the trust they command. Similarly, Indian banks should raise funds from the market at very competitive rates.

But to lend, banks need a strong deposit base. Banks can mobilise funds via bonds, such as the infrastructure bonds some of them have issued in recent years. We had plans for bond issuance this year too, but that didn't happen. We still have such plans.

Rather than their core operations, banks make money from the treasury route. Deposit growth looks constrained, as retail investors prefer stock markets. Large corporate houses are also increasingly less reliant on bank loans. How are banks going to expand credit in this scenario?

We can't divide the banking operations into boxes. As long as the banks are able to receive deposits and pay back, and make profits, the model can't be faulted. Private sector banks' lending is mostly for retail, cars, homes, and temporary loans. However, public sector banks also lend to the infrastructure segment. PSBs do a lot of corporate lending as they are committed to financial inclusion and fund a large number of government schemes. Despite that, PSBs' books are growing and they are making profits. As long as the profits are there, the investor should be happy.