Uday Kotak makes Massive claim, says Banks will be completely destroyed if…, India’s Richest banker makes THIS statement due to…

Kotak Mahindra Bank founder Uday Kotak wrote on the microblogging platform X, "If the shortage of deposits continues, it will become a threat to the banking business model."

New Delhi: The Reserve Bank of India‘s (RBI) Monetary Policy Committee is likely to meet soon, wherein there could be an announcement of another cut in the repo rate. Meanwhile, Uday Kotak, Asia’s richest banker, has highlighted a major issue faced by banks today. He stated that banks are experiencing a decline in deposit inflows, which could lead to losses. Kotak has also flagged that due to the slow growth of low-cost retail deposits, banks are relying on expensive bulk deposits and lending at negative margins.

Kotak Mahindra Bank founder Uday Kotak wrote on the microblogging platform X, “If the shortage of deposits continues, it will become a threat to the banking business model.”

Leading banks are taking 1 year wholesale deposits at ~8%. Translates to loaded marginal deposit cost of 9%+ after CRR (0 interest), SLR, deposit insurance, priority sector. Excluding opex. Low cost Retail Deposits (CASA non wholesale) show muted growth across the system.

Yet,…

— Uday Kotak (@udaykotak) March 28, 2025

This means that if banks do not have enough money to deposit, it will become difficult for them to operate. He stated that large banks are currently accepting bulk deposits at an 8 percent interest rate, which raises the marginal deposit cost to over 9 percent. This means that banks have to pay 8 percent interest on bulk deposits, increasing their costs.

What is the issue?

Apart from the 8 percent interest on bulk deposits, there are additional costs like CRR (Cash Reserve Ratio). CRR means that banks have to keep a certain portion of their deposits with the Reserve Bank, on which they do not earn any interest.

In addition, there is SLR (statutory liquidity ratio), deposit insurance, and priority sector lending targets.

• SLR means that banks must invest a portion of their deposits in government bonds.
• Deposit insurance ensures that if a bank fails, depositors will receive a portion of their deposited money back.
• Priority sector lending targets require banks to allocate a certain percentage of their loans to specific sectors, such as agriculture and small businesses.

According to Kotak, despite these expenses, the bank is offering home loans at a floating rate of 8.5 percent, while their borrowing cost is 9 percent. This means they are incurring a loss of 0.5%. In other words, the bank is paying more interest on borrowing than they are charging on home loans.

He also mentioned that retail deposits across the entire banking system are gradually increasing, and there is an expectation of a further decline in the repo rate. The repo rate is the rate at which the Reserve Bank lends to banks. This will continue to pose a challenge in managing costs and lending rates.