Term deposit share in bank deposits bounced back to 42 pct this financial year

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Published: December 12, 2018 2:28:44 AM

The share of term deposits in banks’ incremental deposits bounced back to 41.8% in 2017-18 from 19.1% in 2016-17 as the psychological impact of demonetisation on saving behaviour wore off.

During FY18, the growth of savings deposits remained robust, indicating a lagged impact of the note ban exercise on depositors’ preferences, the central bank observed.

The share of term deposits in banks’ incremental deposits bounced back to 41.8% in 2017-18 from 19.1% in 2016-17 as the psychological impact of demonetisation on saving behaviour wore off, showed data released by the Reserve Bank of India (RBI) in its monthly bulletin for December.

In an article titled ‘Post-Demonetisation Patterns of Deposits with Scheduled Commercial Banks: 2016-17 and 2017-18’, the RBI stated that bank deposits generally tend to move in tandem with economic activity. “Since 2010-11, this association appears to have become closer, pointing to the role of branch expansion and financial inclusion in formalising savings into the banking system. In 2016-17, however, a distinct deviation from this co-movement was observed, when an overwhelming share (66.2%) of incremental deposits took the form of savings deposits in sharp contrast to the average share of 27.5% during the 15-year period 2001-2016,” the RBI noted in the article.

Correspondingly, term deposits constituted less than 20% of incremental deposits against an average share of around 63% during 2001-16.

During FY18, the growth of savings deposits remained robust, indicating a lagged impact of the note ban exercise on depositors’ preferences, the central bank observed.

At the same time, despite the demonetisation-driven jump, aggregate deposit growth moderated during 2016-18 in relation to the pre-demonetisation years. This development was a result of two factors which were simultaneously at work. One was a sharp reduction in inter-bank deposits, reflecting improved cash management by banks on the back of the real-time funds transfer technology, introduced in 2013-14. Second, the redemption of foreign currency non-resident [FCNR(B)] swaps — contracted in 2013 during the taper tantrum — produced a contraction in non-resident deposits in the second half of FY17.

These began to get recouped in FY18. As a result, the share of the financial sector in bank deposits dropped to 5.9% in March 2018 from 10% in March 2013.

The article also noted that private banks mobilised more deposits than public sector banks in FY18. “During demonetisation, private sector banks increased their share in the deposits of governments, households and the financial sector. PSBs held over 80% of the government sector deposits, but a portion of government sector deposits moved to private sector banks in 2016-18,” the RBI said in the article.

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