Double-digit growth in deposits has eluded banks for a year now with the rate of growth of households savings moderating and more surpluses finding their way into mutual funds. Data released on a fortnightly basis by the Reserve Bank of India (RBI) showed that bank deposits grew between 3 and 10% year-on-year (y-o-y) in the fortnights between August 18, 2017 and August 17, 2018.
The last time the banking system reported a more than 10% growth in deposits was during the fortnight ended August 18, when the increase was 10.3%. At the same time, deposit growth has recovered from the lows of 3-5% y-o-y growth witnessed during November 2017-January 2018, when the effect of a demonetisation-induced high base came into play. The latest fortnight for which data is available, ended August 17, saw bank deposits growing at 8.3% to `115.11 lakh crore. As a share of gross national disposable income (GNDI) deposits have fallen to 2.9% in 2017-18 from 6.3% in 2016-17.
In recent months, bankers, too, have flagged the slow growth in deposits. Rajnish Kumar, chairman, SBI, said banks losing savings to the markets is a matter of concern. Addressing an event, Kumar observed that while the previous year had seen current account and savings account (CASA) deposits grow as much as 26%, growth had slipped to 9% in the current year. “Term deposits are not growing as much and the reason is that the rates of interest which banks are today offering on a fixed deposit, when compared to many other competing products, particularly the flow of funds to the mutual fund industry, the growth has slowed down,” Kumar said.
On February 28, SBI had raised interest rates on retail fixed deposits (FDs) for the first time in close to three and a half years. Between February and September, the rate offered by the bank for one-year money has risen 45 basis points (bps) to 6.7% per annum. The savings rate at the bank, as at most of its large peers, stands at 3.5%.
Apart from losing retail deposits to mutual funds, some banks, especially those under the prompt corrective action (PCA) framework, have consciously begun to shed bulk deposits. In a recent note, ratings agency Icra said that the lowering of bulk deposits in their PCA banks’ portfolios is reflected in their CASA ratio improving to 37.6% as on March 31, 2018, from 29.6% as on June 30, 2016. Of this, the savings deposits increased to 31.1% (March 31, 2018) of total deposits from 23.7% (June 30, 2016).