AK Tewari, MD, SBI, discusses the RBI Policy with ET Now. He says: “once a bank comes under pressure, the definition of LCR (liquidity coverage ratio), of looking at outflows of 30 days, does not hold in the digital times. Now, we have to see if it going to be seven days, two days? The point is that the entire digital system and the ability to withdraw large sums of money instantaneously. If a simultaneous withdrawal happens, a run on the bank can be really fast. People do not have to stand in queues or at the ATMs. We will watch out for what exactly comes out in terms of the review.”

The LCR framework that the governor talked about, what do you think is the importance of that because he talked about how we inched towards a surplus situation in March as well and overall, this announcement coming in for the small finance banks on the currency derivative side, what is the credence of that?
AK Tewari: LCR (Liquidity Coverage Ratio) is a very important thing in the whole speech because we have the example of Silicon Valley Bank in 2022. In one single day, $42 billion was withdrawn and the next day $100 billion more was being tried, which was almost 80% of the total deposits. So, once a bank comes under pressure, the definition of LCR of looking at outflows of 30 days, does not hold in the digital times . I think this is the point he was trying to make. We have to wait and see the outflow periodicity. Now, we have to see if it going to be seven days, two days, what? We will have to look at that. But the point is that the entire digital system and the ability to withdraw large sums of money instantaneously. If a simultaneous withdrawal happens, a run on the bank can be really fast. People do not have to stand in queues or at the ATMs. So, that is the point being made and we will watch out for what exactly comes out in terms of the review. It is an important point which he made.

How are you looking at all of these announcements in light of the banking sector as well? Nilesh Shah was alluding to the fact that deposit franchising is going to be fairly critical as liquidity is tight. The RBI governor is talking about how the decade is going to be very transformational with respect to the already ongoing e-RUPI pilots.
AK Tewari: Deposit franchise is the key because we have seen that in the last seven-eight quarters, deposit growth has been behind loan growth, not only in percentage terms, but in absolute numbers as well. Therefore, for various reasons the money has been going to the stock market, to mutual funds, as well as small savings.

So, there has been a competition for deposits. With our strong deposit franchise and our rural and semi-urban presence, we are uniquely placed and are doubling down on this. This is the key, I agree with Nilesh, that this has to be focused on. All the other announcements are fine-tuning the various mechanisms, whether it is the derivative hedging capability to small finance banks or the deposit of cash by UPI in the CDMs, all of that. So, for all banks, especially the deposit gathering and focus will be the key thing for the next several quarters.