I. Understanding Declining Deposit Growth Trends and Impacts:

A. Introduction and Background:

   - RBI Governor recently urged banks to innovate product offerings to augment deposit growth.

   - This measure is in response to the slower rate of deposit growth alongside the surge in credit demand, posing potential liquidity risks for the banking sector.

B. Deep-diving into Deposit Growth Concerns:

   - The Credit-Deposit ratio has reached a 20-year peak, indicating a widening disparity between credit and deposit growth.

   - There is a growing reliance on short-term deposits and liability instruments to meet credit demand.

   - Households are switching to mutual funds, stocks, insurance, and pension funds over bank deposits due to high inflation and surging net financial assets.

   - Regulatory requirements like the Cash Reserve Ratio and Statutory Liquidity Ratio also impact the quantity of lendable funds.

C. Impact on Banking System Stability and Liquidity Risk Management:

   - The increasing gap between credit and deposit growth could threaten banking system stability.

   - Banks' increasing reliance on certificates of deposit has complicated liquidity risk management.

   - RBI plans to review the Liquidity Coverage Ratio to proactively manage emerging liquidity risks.

II. Strategies for Increasing Deposit Growth:

A. Role of Core Banking Functions and Innovative Strategies:

   - Banks should focus on their fundamental functions, i.e. deposit mobilisation and lending.

   - It is recommended for banks to expand their branch networks for tapping into new customer segments and to be innovative in deposit mobilisation.

B. Advantages of Flexible Financial Products:

   - Banks can consider reducing the lock-in period for tax-saving fixed deposits to make them more competitive.

   - Offering attractive interest rates, bonuses, or cash incentives could attract more depositors.

C. Use of Technology for Personalized Products:

   - Banks can utilise data analytics to design personalised savings and deposit products to manage and grow savings.

   - Mobile banking apps with user-friendly design and financial planning tools can motivate increased deposits.

III. Understanding RBI's New Liquidity Norms for Housing Finance Companies (HFCs):

 A. Introduction to New Liquidity Requirements:

   - HFCs are now required to maintain higher liquid assets to ensure financial stability.

   - The liquid asset requirement will be increased from 13% to 15% in stages by 2025.

   - HFCs need to maintain a minimum investment-grade credit rating annually to continue accepting public deposits.

B. Established Measures to Mitigate Long-term Liquidity Risks:

   - The maximum tenure for public deposits at HFCs has been reduced from ten years to five years.

   - RBI has also reduced the ceiling on the quantum of public deposits an HFC can hold to prevent over-leveraging.

Background and Importance of [Housing Finance Companies (HFCs):

   - HFCs were established under the Companies Act 1956 and initially regulated by the National Housing Bank.

   - The regulatory authority over HFCs was transferred to the RBI in 2019.

   - HFCs were designed to meet rising loan demands from various income groups and have emerged as leading sources of home loans.

The tightening of HFC's liquidity norms is aimed at ensuring these companies maintain a healthy balance between their assets and liabilities and to align them with regulations for NBFCs to promote uniformity across all areas of Non-Banking financial operations.