Correction in equity markets over time can help banks get back the deposits it has ceded, State Bank of India managing director Ashwini Kumar Tewari said. 

Tewari also said the country's largest lender will focus on small-value, small-ticket deposits, including the Prime Minister Jan Dhan Yojana (PMJDY) accounts, to drive growth and boost liquidity.

Banks have been grappling with liquidity pressure as deposit growth has trailed loan growth, coinciding with the stock market trading at record-high levels.

Speaking on the sidelines of the Global Fintech Fest (GFF), Tewari told reporters that the capital markets rally has seen a shift of money away from the banks to the higher yielding alternative investment avenues.

"As the market corrects over time, some of the money that was earlier with us, will come back," he said.

The bank is looking at the small-ticket deposits from the decade-old PMJDY across its vast network to drive its deposit growth.

The lender will focus on accounts under the Jan Dhan government scheme that provides access to various financial services to low income groups, Tewari said. The average deposit size per account under the programme is around Rs 4,500.

For nearly 18 months, deposit growth has trailed credit growth. This has led to lenders raising interest rates on deposits. Margins have narrowed as a result and there is concern that banks may be forced to moderate loan growth.

Tewari said nearly 90% of the funds fuelling credit for the banking system used to come from deposits. The share is coming down as the banks are forced to go for other instruments like infrastructure bonds.

According to RBI data, credit growth rose 13.5% year-on-year as of 9 August while deposit growth was up 10.9%.

The credit-to-deposit (CD ratio) has been hovering around 80% since September 2023. 

Earlier, RBI Governor Shaktikanta Das had warned that the highest credit-deposit ratio in the banking system in at least 20 years could “potentially expose the system to structural liquidity issues”.

The gap between deposit and credit growth has been worrying bankers. “If the gap persists, that creates imbalances. That’s what the regulator is pointing out, that imbalances are not good for the industry and banks. Because otherwise some banks are going to bulk deposits, which are inherently unstable as they are a function of interest rates and can go away very quickly. Retail deposits, which are far more stable, is the way to go,” said Tewari.

SBI's gross advances grew 15.4% year-on-year as of 30 June, while deposits rose 8.2%.

Last month, Tewari had said at an event that government needs to explore options such as tax benefits and incentives for investments linked to deposits, to encourage individuals to keep more money in bank deposits.

The SBI MD had also suggested exploration of various avenues, including a cut in the cash reserve ratio (CRR) or the proportion of deposits which banks are mandatorily required to park with the RBI.

With credit growing at a faster pace, banks face their worst deposit crunch in two decades.