Something is going awry on the liability-side of Indian banks’ balance sheets. For a couple of years now, banks are struggling to raise deposits and all sorts of non-credible excuses have been cited for this eg. the stockmarket rally. In this piece TCA Sharad Raghavan cites the RBI’s growing alarm with the liability side of Indian banks’ balance sheets:

“The Reserve Bank of India (RBI) is now grappling with an unusual problem — people are too easily connected to their bank accounts, and are too dependent on social media for their news.

The concern is that, in times of a crisis at a particular financial institution, or even a rumour of one, depositors can vacuum out their money too quickly for regulators to respond to.

ThePrint has learnt that officials in the RBI have held at least two meetings so far, and have issued guidelines to financial institutions to check their internal system, to reduce the time it would take for them to react to sudden widespread withdrawals.

In addition, the RBI last month also issued a draft circular with guidelines to banks to maintain higher levels of liquid funds associated with deposits in accounts that are connected to internet banking, mobile banking, or the unified payments interface (UPI) system. According to bank officials, this would include nearly all bank accounts now.

One consequence of this heightened safety measure, however, is that it will reduce the funds available with banks to lend further, according to ratings agencies.

“If you see what happened in the Credit Suisse case, within six hours, nearly everything was withdrawn,” Sachin Chaturvedi, non-official director on the central board of the RBI, told ThePrint. “In the US, it took just 12 hours.”

“So, our discussion in the RBI was largely in terms of how much time it would take in India for such withdrawals to happen, and how much time it would take to block and check these,” he added.”

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