Total deposits in the banking system declined by Rs 2.67 lakh crore to Rs 157.8 lakh crore during the fortnight ended November 19. reserve Bank of India data indicates. Both demand and fixed deposits declined sharply by Rs 1.52 lakh crore and Rs 2.67 crore, respectively, during the fortnight.
Analysts attribute this largely to investors using money stashed in banks to apply for several large IPOs during the fortnight. These include Paytm, Sapphire Foods and paisabazar.com among others. “The sharp contraction in deposits during the fortnight is probably driven by withdrawals for the IPO,” said an economist at a foreign bank. “There was a huge jump in deposits in the last fortnight.”
But despite banks reducing the interest rates earned on them, deposits on a longer-term basis continue to see strong growth. The weighted average fixed deposit rates have fallen by more than 50 basis points-bps in the past one year. Nevertheless, the year-on-year deposit growth stood at 9.8 per cent as of November 19, as per Bank deposits risk free route of Investment for the savers. It is believed that bank deposits account for almost half of household financial savings in India as they are generally risk averse. But this mindset is slowly changing, say experts.
As far as credit is concerned, there was a marginal uptick of Rs 1,158 crore during the fortnight. But on a longer-term basis, banks are seeing a pick-up in demand for credit as economic activity picks up after the easing of lockdown-induced restrictions. On a year-on-year basis, credit growth stood at 6.9 per cent till November 19, as against less than 6 per cent a few years ago.
According to the latest data on sectoral deployment of bank credit, loans to large corporates grew 0.5 per cent (on a year-on-year basis) to Rs 22.7 lakh crore in October, compared to a contraction of 1.8 per cent a year ago. All major sectors except services including agriculture, industry and retail registered higher growth rates over the previous year.