The growth of deposits with banks hit a 51-year low of 11.42% last year, according to data from the Reserve Bank of India...
The growth of deposits with banks hit a 51-year low of 11.42% last year, according to data from the Reserve Bank of India (RBI), report Saikat Neogi and Bhavik Nair. The last time deposits grew at a pace below this was in 1962-63, when the increase was 6.5%. While
the real rate of interest on deposits turned positive in late 2013 after inflation dropped to below 9%, households appear to have preferred
to buy gold or invest in real estate. Banks may also have lost out to products such as PPF and EPF because of the tax breaks they offer.
The increase in time deposits fell to 11.3% in FY15 from 14.8% in FY14 whereas demand deposits grew at 12.53% from 7.8% in FY14. However, as a share of total household financial savings, deposits with commercial banks accounted for a higher 53.1% in FY14 compared with 51.1% in FY13. Life insurance funds accounted for 16.6% in FY15 versus 17.2% in FY14.
While the slower flows should have worried bankers, they are not yet anxious given there are few takers for credit — neither individuals nor companies are rushing to borrow given loan rates remain relatively high. Credit growth last year hit a 20-year low of 9.75%.
“Credit offtake in the system has been low and so banks have not been pushing deposit growth too aggressively,” said PK Gupta, CFO at State Bank of India (SBI).
Jairam Sridharan, president (retail), Axis Bank, pointed out that weak demand for credit results in a moderation in banks’ appetite for deposits.
“In this environment, consumers and businesses shift deposits towards investment vehicles like stocks and mutual funds,” Sridharan said.
Ranjan Dhawan, MD and CEO, Bank of Baroda, said, “With high inflation, people have been shifting to products such as gold and real estate.”
Currently, SBI offers an interest rate of 5-8.75% for retail deposits and 6.25-8.75% for bulk deposits while BoB offers 4.5-8.75% for both retail and bulk deposits. At private sector banks too, the highest rate for term deposits is close to 8.75%.
Corporates are seen preferring mutual fund schemes as an alternative route of deploying money due to their need to maintain liquidity, Lakshmi Iyer, CIO, at Kotak AMC, said. An ultra-short-term fund provides a return in the range of 8.50-9%.