Finance Minister Nirmala Sitharaman called on lenders to focus on their core business and explore new ways to attract deposits, as household savings increasingly shift toward investment products.
"Both RBI and the government want banks to focus on their core activity. That's where your bread and butter lie," Ms Sitharaman said at a briefing following the Reserve Bank of India's board meeting.
Banks must offer attractive deposit plans, she said, echoing remarks made by Reserve Bank of India (RBI) governor Shaktikanta Das in his recent monetary policy address.
Indian banks have experienced significant credit expansion in the post-pandemic period, but sluggish deposit growth threatens to undermine the financial sector.
On Thursday, the RBI warned banks that this mismatch could lead to liquidity issues, and urged them to use their vast branch network to boost deposits.
"As it stands today, we don't see a crisis but it has to be dealt with by individual banks," Mr Das said at the briefing. "If it goes on like this, unattended, it can lead to a potential structural liquidity management issue."
India's financial regulator has expressed concern about the increase in credit deposit ratios, a measure of how much of a bank's deposits are being lent out.
The gap between credit and deposit growth rates calls for bank boards to re-strategize their business plans, the RBI said in its June bulletin.
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