With banks increasing their dependence on bulk deposits to fund credit growth, the Reserve Bank of India (RBI) today emphasized on strengthening liquidity management for shoring up core deposit base and keep adequate cushion of liquid assets to meet unforeseen contingencies.
The central bank has noted that there is a growing dependence on purchased liquidity by banks and also an increase in the illiquid component in banks’ balance sheets with greater reliance on volatile liabilities.
“There has been a shortening of residual maturities, leading to a higher asset-liability mismatch,” RBI said.
According to the central bank, increase in growth of housing loans, real estate exposure and also infrastructure lending has resulted in elongation of the maturity profile of banks assets.
“What needs to be borne in mind is that while at an individual customer level, retail deposit may be volatile, but for banks and the banking system as a whole it provides solid foundation for the banks to fund their long-term assets suhc as infrastructure,” RBI said.