India's banks are losing savings account money to mutual funds: Banking Secretary

Public sector banks are losing savings accounts more rapidly than private banks, with money flowing into mutual funds, Banking Secretary Vivek Joshi told CNBC-TV18 that this is a worry and a challenge for the banking sector. The net interest margins of government-owned banks are also under pressure, he added.

The current account and savings account (CASA) growth is a cause for concern for the public sector banks (PSBs), said Joshi, Secretary, Department of Financial Services (DFS) on Tuesday, February 6.

"The deposit growth rate is around 13%, whereas the advances growth rate is around 16% in the PSBs. And that has been the case for most of the years. However, if you look at the performance of PSBs, their CASA is getting affected. So, that is a cause of concern not only for public sector banks but also for the banking system as a whole," Joshi told CNBC-TV18.

Mutual funds have a role in this trend too, Joshi further added.

"I think the reason for that may be that people are moving their savings from banks to maybe mutual funds, etc. So, that is the biggest challenge for the banks in the coming days or coming quarters which I see.”

The Banking Secretary also added that the government is seeking exemptions for PSBs under the 75% minimum public shareholding (MPS) norm, and the public lenders will be exempted until August 2025.

“If you look at the public sector banks, we have, on one end of the spectrum, SBI, which has around 56% holding by the government. And then, on the other extreme, we have Indian Overseas Bank, UCO Bank or Bank of India, whereby the shareholding of the government is more than 95% or so. Banks are allowed by the government from time to time to offload equity and raise money from the capital market. So, that has been the thinking until now. As per SEBI regulations, they are supposed to maintain the 75% shareholding by the government, for which we take exemption from the Department of Economic Affairs. The current exemption will stay until August 2025.”

Joshi added that financial inclusion, NPA recovery, and cyber security remain big focus areas for the PSBs.

“In public sector banks, one part is very important for the DFS and that is the financial inclusion schemes—the Prime Minister Jan Dhan scheme, the Prime Minister's Suraksha Bima Yojana, Jeevan, Jyoti Yojana etc. Then the two most important schemes that have been launched very recently by the government are the PM SVANidhi scheme, in which we have already covered 76 lakhs of street vendors. And then there is another new scheme called PM Vishwakarma for artisans. So, those are going to be my immediate priorities in the coming months."

The Banking Secretary further added that loan recoveries were at ₹61,000 crore in FY24.

"The other priorities are to improve the overall work of the public sector, especially the recovery part. In the banking system once we technically write-off, once we provide for the NPAs, then that goes out of the balance sheet, but that should not go out of the minds of the MDs and top management of the banks. That has been one of my focus areas after I took over. In public sector banks, last financial year (FY23), the recovery was almost Rs 1 lakh crore. In the current nine months, it has been Rs 0.61 lakh crore."