Saturday, February 23, 2008

RBI asks banks to cover under banked areas in financial inclusion

The Reserve Bank of India (RBI) has asked the banks to speed up their efforts for financial inclusion and to cover under banked areas under the scheme of financial inclusion and increase pool for funds.

“The banks have to combine profit motive with certain social functions. The financial system cannot leave out certain sections of the society,” RBI Executive Director Anand Sinha said, while addressing the Second Annual Risk and Compliance Summit organized by the Indian Banks’ Association.

Referring to the financial inclusion RBI official said such efforts help in improving the bank’s balance-sheet. He said, “In the long run, banks will get stable source of funds.”

Many of the international banks are being affected by the funding crisis mainly because of less stable core deposits. They get the funds through unstable deposits.

Currently, the Indian banking bodies are busy in stiff competition to raise resources for business growth. This has pushed the rates for bulk deposits as well as term deposits.

Some banks are giving close to 10 per cent (per annum) interest on short-term deposits. Therefore, the share of low-cost deposits (savings and current account) has come down over the time period.

Also, there has been a downward shift in the average maturity period for deposits. The major portion of deposits (retail and bulk) has maturity of less than one year.

In the past RBI has warned banks against overdependence on the high-cost bulk deposits, which is sensitive to even marginal rise in rates (read they move swiftly from bank to bank).

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