On a year-on-year basis, credit offtake rose by 17.9 per cent as against 6.5 per cent a year ago
The banking system has witnessed a lower growth of 4.9 per cent in deposits in the current financial year so far while credit offtake surged by 8.1 per cent since April 2022.
Deposits of banks rose by Rs 15.17 lakh crore since April 2022 to Rs 172.72 lakh crore, according to the latest RBI data. The deposit growth in the same period of last year was Rs 14.53 lakh crore. “The lower growth in deposits when compared to the higher credit offtake indicates that competition will hot up among banks to garner deposits at a time when interest rates are on the rise,” said a senior banking source.
On a year-on-year basis, credit offtake rose by 17.9 per cent as against 6.5 per cent a year ago. On the other hand, deposits rose by 9.6 per cent as compared to 10.2 per cent on a year-on-year basis.
According to a Bank of Baroda report, with a changing financial landscape, volatility in the interest rate regime and risk taking appetite increasing, there has tended to be a change in the pattern of deployment of financial savings. RBI’s recent report on financial assets of households show that there has been a shift in pattern, where mutual funds and equity witnessed sharp increase in FY22 with shares of 6.3 per cent and 1.9 per cent in overall financial assets respectively (ratio was 2.6 per cent and 1.1 per cent in FY20), while share of bank deposits declined to 25.5 per cent in FY22 from 34.4 per cent in FY20.
EXPLAINED
Report flags shift in pattern
According to a Bank of Baroda report, with a changing financial landscape, volatility in the interest rate regime and risk taking appetite increasing, there has tended to be a change in the pattern of deployment of financial savings.
However, it must be pointed out that the quantum of bank deposits is much larger, about 4.1 times than that of mutual funds denoted by AUM (assets under management). In this context, we examine whether there has been any substitution between bank deposits, mutual funds- debt and equity in the past 6 years, according to Dipanwita Mazumdar, Economist, Bank of Baroda.
Since FY16 (till September 2022), total bank deposits have shown an accretion of Rs 77 lakh crore. Within that, term deposits have increased by Rs 66 lakh crore.
A secure interest rate regime and risk averse sentiment have worked in favour of garnering bank deposits at a faster pace, BoB said.
Bank deposits would face competition from mutual funds as households get more market savvy and are willing to take their chances in the capital market. “Mutual funds provide a safer way by pooling resources and investing the same based on professional judgment. Within various mutual funds schemes, debt funds have still not caught on relative to equity and hybrid ones. A rather under developed secondary market and a more complex market to understand could be the reasons behind this phenomenon,” BoB said.
Source- INDIAN EXPRESS
