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<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

<ul><li>The retail credit book grew by 18.7 % and wholesale credit book grew by 20.2 %.</li><li>The bank's total deposits aggregated to ₹189,146 crore, a growth of 10 % since last year.</li><li>The <keyword id="6422019" type="General" weightage="80" keywordseo="casa" source="Orion">CASA</keyword> ratio reached 36.41 % (Q2 FY23) from 36.16 % (Q2 FY2 2).</li></ul> Private sector <keyword id="6356495" type="General" weightage="100" keywordseo="federal-bank" source="Orion">Federal Bank</keyword>'s gross advances stood at ₹163,956 crore as of September 2022 logging 19.4 % year-on-year (YoY) growth. In a regulatory filing Federal Bank said that its gross advances grew by 19.4 % to ₹163,956 crore from ₹137,313 crore as of September 30,2021. The retail credit book grew by 18.7 % and wholesale credit book grew by 20.2 %. Retail to wholesale ratio at 54:46. The bank's total deposits aggregated to ₹189,146 crore, a growth of 10 % over ₹171,995 crore as of September 30, 2021. The Bank's CASA (Current Account,Savings Account) deposits aggregated to ₹ 68,873 crore, a growth of 10.7 % over ₹ 62,191 crore as of September 30, 2021. The CASA ratio reached 36.41 % (Q2 FY23) from 36.16 % (Q2 FY2 2). SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/news/ril-sanmina-completes-jv-to-build-manufacturing-hub-in-india/articleshow/94637228.cms">RIL, Sanmina completes JV to build manufacturing hub in India</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/authorities-suspended-mobile-internet-in-parts-of-jammu-rajouri-districts/articleshow/94636542.cms">Authorities suspended mobile internet in parts of Jammu, Rajouri districts</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/national-green-tribunal-slaps-telangana-with-a-3800-cr-fine-for-waste-management-failure/articleshow/94636341.cms">National Green Tribunal slaps Telangana with a ₹3,800 cr fine for waste management failure</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/telecom/news/reliance-jio-and-airtel-5g-prices-may-be-affordable-for-now-but-expected-to-increase-after-wider-rollout/articleshow/94636173.cms">Reliance Jio and Airtel 5G prices may be affordable for now but expected to increase after wider rollout</a>

Federal Bank logs 19% y-oy growth in advances at ₹1,63,956 cr

Credit growth outpaced deposit growth for commercial banks in June, the <keyword id="6354335" type="General" weightage="50" keywordseo="reserve-bank-of-india" source="Orion">Reserve Bank of India</keyword> (<keyword id="30067" type="General" weightage="100" keywordseo="rbi" source="Orion">RBI</keyword>) said in its quarterly statistics on deposit and credit of commercial banks for June 2022 released on Thursday. As credit growth is outpacing deposit growth in the recent period, credit-deposit (C-D) ratio has been on the rise: In June it stood at 73.5 per cent at the all-India level (70.5 per cent a year ago) and 86.2 per cent for <keyword id="128814" type="General" weightage="80" keywordseo="metropolitan" source="Orion">metropolitan</keyword> branches of banks (84.3 per cent a year ago), the RBI said. According to RBI, the credit growth (y-o-y) accelerated further to 14.2 per cent in June from 6 per cent a year ago and 10.8 per cent a quarter ago. Credit growth has been broad-based: All the population groups (i.e., rural, semi-urban, urban and metropolitan), all the bank groups (i.e., public/private sector banks, foreign banks, regional rural banks, small finance banks) and all the regions of the country (i.e., central, eastern, north-eastern, nothern, southern and western) recorded double-digit annual credit growth in June, the RBI said. Aggregate deposit growth (y-o-y) has remained in the range 9.5-10.2 per cent during the last five quarters: Metropolitan branches continue to account for over half of the bank deposits and their share increased marginally over the last one year. The share of current account and savings account (CASA) deposits in total deposits has been increasing over the last three years (42.0 per cent, 43.8 per cent and 44.5 per cent in June of 2020, 2021 and 2022, respectively). SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/sustainability/news/takeouts-without-plastics-is-impractical-now-say-restaurants-with-few-or-no-eco-friendly-options/articleshow/93783273.cms">Takeouts without plastics is impractical now say restaurants with ‘few or no’ eco-friendly options</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/careers/news/now-pm-modi-bats-for-flexible-workplaces-and-says-they-help-women/articleshow/93789410.cms">Now, PM Modi bats for flexible workplaces and says they help women</a>

Credit growth outpaced deposit growth of banks in June: RBI

Mumbai, Apr 20 () The fourth largest private sector lender Kotak Mahindra Bank has slashed the interest rates on savings deposits for the second time this month.The bank had lowered the savings rates from April 1 and the new lower rates are effective Monday and comes even after reporting a healthy jump in its deposit base in the March quarter earlier this month.The largest lender SBI that controls almost a quarter of the banking system had also slashed the pricing on its savings account deposits earlier this month to just 2.75 per cent flat.In an email to its savings bank account holders on Sunday, Puneet Kapoor, the bank's president for products, alternate channels and customer experience delivery said, "effective April 20, the interest rates on daily balances in savings account stands revised to 4.5 per cent per annum for daily balances above Rs 1 lakh and 3.75 per cent for daily balances up to Rs 1 lakh."This is still a full 100 bps more than the SBI rate, which offers only a flat rate to everyone and 25-50 bps over the industry average, while its higher rate is still much above the both.When contacted, the bank's spokesman told that the move reflects falling interest rates scenario and will help better manage the cost of funds and pass on the benefit to borrowers. Kotak was one of a handful banks-–Yes Bank, Indusind Bank, RBI and DBS--to offer higher pricing on savings deposits that had peaked at 7 per cent for the past many years. These banks were offering higher rates to bring down their cost of funds by increasing the low-cost Casa (current and savings) accounts. While banks like SBI and HDFC Bank have very high Casa base of over 55 per cent, the same is very low for these banks in the mid-30 to early 40s type.A higher Casa helps banks bring down their cost of funds as there is a current account holder gets no interest on the balance in the account, the savings accounts offer 3 - 3.5 per cent on average at best. Earlier this month, Kotak Bank had said it saw an 11.7 per cent spike in customer deposits and a 1.3 per cent jump in advances in the March quarter over the December 2019 quarter.In the March quarter, its current account deposits grew 16.9 per cent sequentially, while the savings bank deposits jumped 14 per cent. This comes amidst its peers including RBL Bank and Indusind Bank, which also offer 4-5 per cent interest on savings deposits have seen a dip in deposits during the quarter as the economy has been on southward ho for many quarters now, which got a deadly shock later last month due to the Covid-19 pandemic. Effective April, Kotak had reduced the rate offered for deposits of over Rs 1 lakh in the savings account to 5 per cent from 6 per cent earlier, while those under Rs 1 lakh will continue to earn 4 per cent, saying the lower pricing was to support the economy and to extend support to government effort in fighting the pandemic. The bank also pointed to the overall falling interest rates. The share of the low cost current and savings accounts deposits in the overall deposit base rose to 56.2 per cent as on March 31, as against 53.7 per cent in December and 52.5 per cent in the year-ago period. The Kotak counter traded 0.7 per cent up at Rs 1,194.50 on the BSE at 1315 hrs against the benchmark Sensex negotiating a choppy trade. BEN AA MR

Kotak Bank lowers interest rates on savings deposits 2nd time in Apr

New Delhi [India], July 19 (ANI): Households are choosing the <keyword id="20033427" type="General" weightage="20" keywordseo="capital-markets" source="keywords">capital markets</keyword> over the <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> to park or invest their <keyword id="25450" type="General" weightage="20" keywordseo="savings" source="Orion">savings</keyword>, highlighted <keyword id="64190" type="General" weightage="20" keywordseo="RBI-Governor" source="Orion">RBI Governor</keyword> <keyword id="3083263" type="General" weightage="20" keywordseo="Shaktikant-Das" source="Orion">Shaktikant Das</keyword> during his address at FE Modern BFSI (Banking, Financial Services, and Insurance) Summit 2024 on Friday. Governor Das highlighted that traditionally, banks were the primary choice for households to invest their money. However, there has been a noticeable change in consumer behaviour, with a growing preference for capital markets and other <keyword id="5869841" type="General" weightage="20" keywordseo="financial-intermediaries" source="Orion">financial intermediaries</keyword>. He noted, "Households and consumers who traditionally leaned on banks for parking or investing their savings are increasingly turning to the capital markets and other financial intermediaries." This trend indicates a broader diversification of <keyword id="22469312" type="General" weightage="20" keywordseo="household-investments" source="Orion">household investments</keyword> into <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and other savings tools, moving away from traditional investment tools. The Governor stated, "While bank deposits continue to remain dominant as a percentage of the financial assets owned by the households, their share has been declining, with households increasingly allocating their savings to Mutual Funds, Insurance Funds, and Pension Funds." Governor Das also pointed out that this shift in investment patterns has significant implications for the banking sector. Banks now need to explore alternative methods to bridge the gap between credit and deposits. He added, "On their part, banks have sought to fill the credit-deposit gap by increasing their reliance on other sources like short-term borrowings and certificates of deposit, etc. This increases their sensitivity to interest rate movements and poses challenges to liquidity management." The Governor further elaborated on the implications of the shift from CASA (Current Account Saving Account) deposits, stressing that banks must remain vigilant and adaptive. He stated that banks need to continuously focus on improving and refining their credit underwriting standards and the pricing of risks to maintain stability and profitability. Reflecting on recent global banking events, Governor Das drew attention to the banking crises in the US and Switzerland in 2023, which highlighted the risks and vulnerabilities inherent in certain business models. He emphasized the importance of learning from these crises to enhance the resilience of the banking sector. "The banking crisis in the US and Switzerland in 2023 has again brought into focus the risks to banking stability from certain business models and their inherent vulnerability," he added.

Household savings are choosing mutual funds over banks to invest savings: RBI Governor

The bad assets or gross <keyword id="19964545" type="General" weightage="20" keywordseo="NPAs" source="keywords">NPAs</keyword> of commercial <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> fell to a 12-year low of 2.8% in March 2024 and may go down further to 2.5% by the end of the current fiscal, said the <keyword id="19899808" type="General" weightage="100" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="269" meta.entityid="RBI">RBI</keyword>'s <keyword id="678734" type="General" weightage="20" keywordseo="Financial-Stability-Report" source="Orion">Financial Stability Report</keyword> (FSR) released on Thursday. <keyword id="19982351" type="General" weightage="20" keywordseo="Scheduled-Commercial-Banks" source="keywords" meta.keywordsubtype="org" meta.entityname="Scheduled Commercial Banks" meta.hostid="269" meta.entityid="Scheduled Commercial Banks">Scheduled Commercial Banks</keyword>' (SCBs) gross <keyword id="6401657" type="General" weightage="20" keywordseo="non-performing-assets" source="Orion">non-performing assets</keyword> (<keyword id="19982350" type="General" weightage="20" keywordseo="GNPA" source="keywords">GNPA</keyword>) ratio fell to 2.8%, and the net non-performing assets (NNPA) ratio to 0.6% at the end of March 2024. "The asset quality of SCBs recorded sustained improvement, and their GNPA ratio moderated to a 12-year low in March 2024. Their NNPA ratio too improved to a record low," said the June FSR. Among bank groups, public sector banks (<keyword id="20012926" type="General" weightage="20" keywordseo="PSBs" source="keywords">PSBs</keyword>) recorded a substantial reduction (76 bps) in their GNPA ratio during H2 2023-24. While the GNPA stock decreased across all bank groups, active and deep provisioning by PSBs and foreign banks (FBs) resulted in an improved provisioning coverage ratio (PCR) in March 2024, the report said. The half-yearly slippage ratio (viz, new NPA accretions as a share of standard advances) decreased across bank groups. Though the amount of write-offs declined during the year, the write-off ratio remained almost at the same level a year ago due to a reduction in GNPA stock, the FSR said. Overall, it added the sustained reduction in the GNPA ratio since March 2020 has been primarily due to a persistent fall in new NPA accretions and increased write-offs. The RBI said macro stress tests are performed to assess the resilience of SCBs' balance sheets to unforeseen shocks emanating from the macroeconomic environment. These tests attempt to assess capital ratios over a one-year horizon under a baseline and two adverse (medium and severe) scenarios. "The GNPA ratio of all SCBs may improve to 2.5% by March 2025 under the baseline scenario," the report said. However, if the macroeconomic environment worsens to a severe stress scenario, the ratio may rise to 3.4%. Under the severe stress scenario, the GNPA ratios of PSBs may increase from 3.7% in March 2024 to 4.1% in March 2025, whereas it may go up from 1.8% to 2.8% for private sector banks and from 1.2% to 1.3% for FBs. The <keyword id="20089808" type="General" weightage="20" keywordseo="financial-stability" source="keywords">Financial Stability</keyword> Report reflects the collective assessment of the Sub-Committee of the Financial Stability and Development Council (FSDC) on the resilience of the Indian financial system and risks to financial stability. The report further said deposit mobilisation by SCBs gathered pace during 2023-24, with a large portion of new accretions in the form of term deposits. "Interest rates became more attractive as banks stepped up efforts to mobilise funds to match the rapid rise in credit demand. Growth in current account and savings account (CASA) accelerated across all bank groups," the RBI said. According to the report, bank credit accelerated during H2 2023-24 among public sector banks (PSBs) and foreign banks (FBs), whereas it moderated in respect of private sector banks (PVBs). The share of credit to the services sector and personal loans in the aggregate loan portfolio increased. Personal loans accounted for over half of PVBs' <keyword id="19998083" type="General" weightage="20" keywordseo="credit-growth" source="keywords">credit growth</keyword>. The expansion in personal loans was broad-based, led by housing loans and followed by other personal loans.

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Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

Federal Bank logs 19% y-oy growth in advances at ₹1,63,956 cr

IANS

Credit growth outpaced deposit growth of banks in June: RBI

IANS

Kotak Bank lowers interest rates on savings deposits 2nd time in Apr

PTI

Household savings are choosing mutual funds over banks to invest savings: RBI Governor

ANI

Banks' gross NPAs at 12-yr low, may fall further to 2.5%: RBI report

PTI

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