Editorial 1 : The Kyiv Opportunity
Context: Prime Minister’s visit to Ukraine
Introduction
- PM Modi is set to become the first Indian Prime Minister to visit Kyiv.
- This visit must be seen as a major step towards disentangling Delhi’s engagement with Central Europe from the conflict between Russia and its western periphery.
Russia vs Ukraine
- Structuring a sensible relationship between Russia and Ukraine after the separation in 1991 was complicated for India.
- Moscow laid strong claims for primacy in Ukraine and has demanded limits to Kyiv’s relations with the West.
- Kyiv, sought greater strategic autonomy from Russia and tried to diversify ties with Europe and America.
- Tensions boiled over in 2014 with a major internal change triggered by the Maidan Revolution and Russian occupation of Crimean Peninsula.
- The conflict escalated into a full-blown war in February 2022, when Russia invaded Ukraine.
India’s Historic Engagements with Russia
- India’s reluctance to criticise the Russian aggression against Ukraine is rooted in Delhi’s long and productive relationship with Moscow.
- Soviet Union was seen as a positive force in India’s quest for liberation from colonialism and for greater strategic autonomy in the Cold War.
- India was reluctant to condemn repeated Soviet and Russian interventions in Hungary (1956), and Czechoslovakia (1968).
Road ahead for India
- As a rising power, India cannot view Central Europe through the Russian prism always; after all, Moscow does not view the Indo-Pacific through Delhi’s eyes.
- Russia is deepening its strategic ties with China even as it maintains a cordial relationship with India.
- Similarly, India too should de-hyphenate its ties with Russia and Central Europe.
Increasing engagement with Ukraine
- PM’s Ukraine visit should not be seen as a “compensation” for his recent Russia trip.
- It is about India pursuing good relations with both Russia and Ukraine.
- Over the last couple of years, there have been continuous high-level exchanges between Delhi and Kyiv.
- The focus is on “strengthening bilateral cooperation” and sharing “perspectives on the peaceful resolution” of the conflict between Russia and Ukraine.
Editorial 2 : A Funding Mismatch
Context: Gap between deposit and credit growth of banks.
Introduction
- Recently both the Finance Minister and RBI Governor, have raised the issue of the gap between deposit and credit growth of banks.
- As on July 26, 2024, deposit growth stood at 10.6%, while credit growth was at 13.7%.
- The credit to deposit ratio has been around 80% since September 2023.
Outcomes
- The divergence has prompted banks to increasingly rely on other sources of funding such as issuance of certificates of deposits.
- This trend is being observed in both the public and private sector banks.
- A greater reliance on short-term non-retail deposits, may potentially expose the banking system to structural liquidity issues.
Significance of CASA
- Current and Savings Accounts (CASA) are a low-cost source of funds for banks.
- The greater the CASA book, the higher their net interest margins tend to be.
- The shift away from low-cost deposits makes banks more sensitive to interest rate movements.
Causes of divergence between deposit and credit growth
- Challenges on the funding front have been linked to other investment avenues which are becoming a more lucrative proposition for households.
- The causal relationship between mutual funds and bank deposits is not clear.
- The gap can also be due to changes in currency in circulation and interventions in the currency market.
Consequences
- Higher credit to deposit ratios could prompt competition among banks for deposits.
- Banks are now resorting to special deposit schemes and innovative plans to mobilise funds.
- This could drive up their funding costs, and have implications for their margins.
- Banks may align their credit with their deposit growth which could lead slower growth in the economy.