Banks are seeing a shift from savings accounts to term deposits even as credit growth accelerates.

During the reporting fortnight (ending 9 September), all scheduled banks reported an overall increase in deposits of ₹62,196.47 crore, likely due to the transfer of funds from savings accounts to fixed deposits (FD) or the opening of new FD.

Savings bank deposits declined by ₹54,021.77 crore in the fortnight while FD rose by ₹116,218.25 crore, according to the latest RBI data.

FDs are earning relatively higher yields as banks raise interest rates amid a gradual drying up of systemic liquidity.

Over-year FD rates rose to 5.30/6.10% as of September 16, from 4.90/5.50% as of September 17, 2021, according to RBI data. However, the deposit rate at the savings bank continues to be in the 2.70/3.00% range.

Credit growth

Gradual credit growth continued to outpace deposit growth. Banks recorded credit growth of ₹95,751.7 crore in the reporting fortnight against deposit growth of ₹62,196.47 crore.

CARE Ratings, in a report, warned that the widening gap between deposit growth and credit growth could lead to supply-side issues, which would ultimately limit credit growth.

Sanjay Agarwal, Senior Director, and Saurabh Bhalerao, Associate Director (BFSI Research), CARE Ratings, said that although wholesale and retail deposit rates have already increased, they remain roughly at the same level as inflation. , which means that depositors would not win. any interest. Therefore, CARE Ratings expects the increase in the deposit rate to start gaining momentum. As credit growth has accelerated, banks will seek to shore up their deposit base even as liquidity shrinks in the banking system, the agency said.

Credit pip deposits

“Over the past few years, deposits had been growing at a rapid pace, especially relative to credit. However, in the current year, with the reversal of this trend, the year-on-year change in credit has exceeded deposits,” according to the note.

Apparently, a significant portion of the funding gap was filled by mobilizing Certificates of Deposit (CDs). Exceptional CDs stand at ₹2,43,600 crore as of September 9, 2022, from ₹67,145 crore a year ago.

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Banks are seeing a shift of deposits from savings accounts to fixed deposits even as credit growth accelerates.

During the reporting fortnight ending 9 September 2022, all scheduled banks reported an overall increase in deposits of ₹62,196.47 crore, likely due to depositors shifting their deposits from the savings account to the fixed deposits (FD) and the creation of new FDs.

Bank savings bank deposits declined by ₹54,021.77 crore in the fortnight while FD rose by ₹116,218.25 crore, according to the latest RBI data.

This comes at a time when FDs are earning relatively higher yields as banks raise interest rates amid the gradual drying up of systemic liquidity.

Gradual credit growth continued to outpace deposit growth. Banks recorded credit growth of ₹95,751.7 crore in the reporting fortnight against deposit growth of ₹62,196.47 crore.

Published on

September 24, 2022