Investors lose interest in FDs, shift to govt savings schemes
Friday, 26 March 2010
MUMBAI, Mar 25 (Economic Times): More and more individual savers are preferring the government's small savings schemes to bank deposits, a trend that could make it difficult for banks to meet their business targets.
According to projections made by the central bank in the October monetary policy, bank loans would grow 16 per cent while deposits would rise 18 per cent during the current fiscal. For this to happen, banks will have to lend almost Rs 1300 billion by March, and mop up Rs 1610-billion deposits.
The latest figures released by RBI show a 13.8-per cent growth in deposits as banks have raised fresh deposits of Rs 5292 billion between April 2009 and February 2010. The growth is lower than 16.8 per cent recorded between April 2008 and February 2009.
This is reflected in the sharp slowdown in term deposits of most banks. Fresh term deposits raised between April 2009 and February 2010 is Rs 4836.53 billion, which is Rs 970 billion less than what they raised during the same period of the previous financial year.
Bankers attribute the slowdown in deposits to decline interest rates in the current financial year. "Interest rates offered by banks are very low compared to that offered by small saving schemes ofthe government.
Thus there is very little interest to invest in bank-term deposits," said Andhra Bank CMD RS Reddy. Small savings scheme offer 8 per cent while banks' offer around 6.5-7.5 per cent on term deposits.
Also, there has been a conscious effort by many banks to slow down deposits mobilisation with loans failing to pick up. According to Bank of India executive director M Narendra, banks have not aggressively pushed for deposits this year because of a slowdown in credit offtake.
"At the same time, there is a shift towards small savings scheme. But from the macro point of view, there may not be an impact on the overall savings rate," he said.
Banks have been progressively reducing the return on term deposits since November 2008. Peak interest rates on a five-year term deposit has come down from 10 per cent in 2008 to below 8 per cent now.
This has resulted in a shift of savings from banks to other avenues, including small savings schemes such as post office monthly deposit schemes, National Savings Certificates and the Public Provident Fund (PPF).
According to projections made by the central bank in the October monetary policy, bank loans would grow 16 per cent while deposits would rise 18 per cent during the current fiscal. For this to happen, banks will have to lend almost Rs 1300 billion by March, and mop up Rs 1610-billion deposits.
The latest figures released by RBI show a 13.8-per cent growth in deposits as banks have raised fresh deposits of Rs 5292 billion between April 2009 and February 2010. The growth is lower than 16.8 per cent recorded between April 2008 and February 2009.
This is reflected in the sharp slowdown in term deposits of most banks. Fresh term deposits raised between April 2009 and February 2010 is Rs 4836.53 billion, which is Rs 970 billion less than what they raised during the same period of the previous financial year.
Bankers attribute the slowdown in deposits to decline interest rates in the current financial year. "Interest rates offered by banks are very low compared to that offered by small saving schemes ofthe government.
Thus there is very little interest to invest in bank-term deposits," said Andhra Bank CMD RS Reddy. Small savings scheme offer 8 per cent while banks' offer around 6.5-7.5 per cent on term deposits.
Also, there has been a conscious effort by many banks to slow down deposits mobilisation with loans failing to pick up. According to Bank of India executive director M Narendra, banks have not aggressively pushed for deposits this year because of a slowdown in credit offtake.
"At the same time, there is a shift towards small savings scheme. But from the macro point of view, there may not be an impact on the overall savings rate," he said.
Banks have been progressively reducing the return on term deposits since November 2008. Peak interest rates on a five-year term deposit has come down from 10 per cent in 2008 to below 8 per cent now.
This has resulted in a shift of savings from banks to other avenues, including small savings schemes such as post office monthly deposit schemes, National Savings Certificates and the Public Provident Fund (PPF).