until a few years ago The first choice of small investors used to be the deposit schemes of banks. Investors used to invest in FDs and small savings schemes of banks according to their needs. But times have changed so fast that now even the banks cannot believe it. Today, the first choice of small investors has become mutual funds and stocks. Investors from cities to villages are investing in mutual funds through SIP.
Not only this, the number of demat accounts has crossed 16 crores. The youth are investing heavily in shares directly. This has affected the deposits of banks. Deposits have fallen due to common people depositing less money in banks. This has disturbed the credit-to-deposit (CD) ratio of banks. Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have advised banks to improve deposits. Let us know how decreasing deposits are not good for the health of banks. What effect can this have on you?
Bank deposit growth slows down to 10.6%
Indian banks are facing a tough time currently as urban investors are increasingly attracted to high-return investments such as mutual funds and stocks, thereby siphoning off money from banks’ low-cost deposit schemes. The attraction towards stocks is such that the chief of the country’s largest lender, State Bank of India, feels even changes in capital gains tax are unlikely to boost deposit growth. Data released by the Reserve Bank of India (RBI) showed that commercial bank deposit growth for the fortnight ended June 28 slowed further to 10.64 per cent.
Will it be difficult to get a loan?
Even though banks are saying that everything is under control right now, American rating agency S&P does not agree with this. S&P believes that in view of the decreasing deposits, banks may be forced to reduce their loan growth. Bank deposits are not growing at that pace. This is causing the credit-to-deposit (CD) ratio to deteriorate. This means that people are not depositing more money in banks. However, experts say that such a situation has not yet arisen. RBI is keeping an eye on all banks. RBI will take action before such a situation arises.
Banks will have to bring new offers
Banking experts say that new offers will have to be introduced to increase deposits in banks. Products will have to be launched which are capable of giving higher returns. People now want returns like mutual funds. They are even ready to take risks for that. People are also avoiding depositing money in banks because after paying taxes and adjusting for inflation, the returns received from banks remain very low. Banks have no other way to increase deposits except giving higher interest.
Banks bring attractive deposit schemes
To meet the declining deposits in banks, Finance Minister Nirmala Sitharaman has advised banks to introduce attractive saving schemes. Sitharaman said, deposits and loans are two wheels of a vehicle and deposits have been increasing slowly. She said that banks need to focus on core banking i.e. main business. This includes collecting deposits and giving loans to those who need funds.
Banks are free to increase interest rates
Recently, RBI Governor Shaktikanta Das said in a meeting of the members of the Central Board of Directors of RBI that banks are free to decide the interest rates. He said that banks are increasingly relying on short-term, non-retail deposits and other financial instruments to meet the growing loan demands. Das warned that this dependence could lead to potential liquidity problems in the banking system. In such a situation, he said that banks should adopt innovative methods. Also, banks can focus more on mobilizing domestic financial savings by taking advantage of their network. During this, he also expressed concern about the imbalance between deposits and lending in the banking sector.
Bank deposits fall: Who’s to blame?
Experts say that common people cannot be blamed for falling deposits in banks because they will deposit money only where they will get the highest ‘return’. For commercial banks, the CASA (current account savings account) ratio has fallen from 45% in FY22 to 41% in FY24. Bankers and analysts point to the growing disparity between interest rates on term deposits. The CASA ratio is important for banks because it measures the share of low-cost, stable deposits, which reduces their overall cost of funds. A higher CASA ratio boosts profitability by increasing the difference between interest earned on loans and interest paid on deposits.
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