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Reserve Bank of India Deputy Governor Swaminathan J on Thursday flagged rising tendency of banks to depend on bulk deposits, which attract higher cost and therefore affects margins. Swaminathan urged banks to effectively manage their interest rate risks, and said they will have a tough time if they depend too much on higher-priced bulk deposits.
When interest rates decline, these long-term large deposits will still have to be managed and that can lead to lower profits and lower margins, he said.
The biggest impact will be on net interest margins, which will erode profits, he said, while addressing an economic summit organised by the State Bank of India here.
The regulator has found that many banks are not spending even the budgeted amount on IT, the RBI deputy governor said, flagging this as a major risk.
Swaminathan also raised the issue of poor governance and management practices at banks.
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