Bank Deposits Growth Fell To Five-Decade Low

4 May 2018: Growth in bank deposits falls to a five-decade low in the financial year ended March 2018 as the demonetization bonanza faded away and the trick of other savings instruments such as mutual funds and insurance disintegrated banking competitiveness. Data from the Reserve Bank of India (RBI) website shows total deposits in the banking system grew a mere 6.7% in 2017-2018.
 
Managing Director, PK Gupta said,“Deposits rose after demonetization, which is why growth last year was higher. But most of that money has gone out of the banking system last fiscal and that is reflecting in the slower deposit growth numbers. During November-December 2016, banks received Rs 15.28 lakh crore as people deposited high-denomination currency notes that were removed from the transmission. As a result, the total deposits in the fiscal ended March 2017 grew 15.8% to Rs 108 lakh crore. 
 
This step of growth has now come down by 6.7% with deposits aggregating Rs 114 lakh crore. Savings have also moved to other asset classes from bank deposits. Total mutual fund assets under supervision have increased 22% to Rs 21.36 lakh crore in March 2018 from Rs 17.55 lakh crore in March 2017. This had grown 42% from Rs 12.33 lakh crore in March 2016 to Rs 17.55 lakh crore in March 2017. This trend is also visible in insurance investments as first dividends have increased to Rs 1.93 lakh crore in March 2018 from Rs 1.75 lakh crore in March 2017 and Rs 1.38 lakh crore in March 2016. 
 
Bank rates are already rising. Last week, HDFC Bank increased fixed deposit rates in select tenures for deposits under Rs 1 crore by up to 100 basis points. One basis point is the 0.01% point. Bankers say bank deposits are still seen as a liquid investment option which mutual funds and insurance schemes cannot compare with. “Ultimately, securities funds will invest in bank certificates of deposit and fixed deposits and that is also captured in aggregate bank deposits. Growth in deposits is also a function of the GDP growth and includes dynamics like trivial rates, cash with public and real growth,” said Rajat Monga, head-liabilities product management at Yes Bank.