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Winning Bizness Desk

Mumbai. Union Finance Minister Nirmala Sitharaman has called on banks to sharpen their focus on core banking operations. Speaking during a post-budget meeting with the Central Board of Directors of the Reserve Bank of India (RBI) on Saturday, August 10, Sitharaman emphasized the importance of banks concentrating on their primary functions, including deposit collection and lending. "The government and the RBI have consistently stressed the need for banks to prioritize their core banking activities," Sitharaman stated. She highlighted the ongoing concerns about the imbalance between deposits and lending and urged banks to introduce innovative and attractive deposit schemes to enhance fund mobilization.

The meeting, which also saw the participation of RBI Governor Shaktikanta Das, focused on the challenges faced by the banking sector, particularly the growing demand for credit against a backdrop of slower deposit growth.

Banks Have Autonomy Over Interest Rates: RBI Governor

In his address, RBI Governor Shaktikanta Das reaffirmed that banks retain the autonomy to set their interest rates, as both deposit and lending rates are deregulated. This comes after his earlier remarks on August 8, during the presentation of the bi-monthly monetary policy, where he expressed concern over the current imbalance in the banking sector between deposits and lending.

Das noted that many banks are increasingly relying on short-term, non-retail instruments to meet the rising credit demand, which he warned could lead to structural liquidity issues within the banking system. He advised banks to capitalize on their extensive branch networks and focus on mobilizing domestic financial savings by offering innovative products and services.

Potential Structural Liquidity Issues

The RBI Governor cautioned that the current trend of banks leaning on short-term liabilities might create long-term liquidity challenges. He emphasized the need for banks to enhance their deposit mobilization efforts, ensuring a more balanced and sustainable approach to meeting credit demand. The meeting underscored the collaborative effort between the government and the RBI to address the evolving challenges within the banking sector, with a particular focus on maintaining stability and fostering innovation in financial products.

What is Core Banking Solution?

Core Banking Solution (CBS) in India refers to a centralized system implemented by banks that enables customers to manage their accounts and conduct transactions seamlessly across all branches of the bank, regardless of the branch where the account is maintained. This technology integrates a bank's various services such as deposit accounts, loans, payments, and transactions into a single platform, allowing for real-time data processing and access.

Key Features of Core Banking Solutions in India:

* Centralized Database: CBS operates on a centralized database that stores all customer information and transaction data, accessible to all branches of the bank.

* Real-Time Processing: Transactions are processed in real-time, enabling customers to conduct transactions from any branch or digital channel without delays.

* Customer Convenience: Customers can access their accounts and perform banking activities from any branch, ATM, or online banking platform, enhancing convenience.

* Standardization: CBS ensures that all branches of the bank follow the same processes and procedures, leading to uniformity in service delivery.