Growth in bank deposits fell to a 55-year low in financial year 2017-18, according to data on Reserve Bank of India website.
Quoting bankers, a report in the Economic Times (ET) said the reversal from the huge deposits collected in light of the November 2016 demonetisation together with the steady movement of savings away from bank deposits to other savings instruments such as mutual funds and insurance has hit growth.
Bank growth rate fell to 6.7 per cent in 2017-18, lowest since 1963, in the financial year ending March 2018.
Banks had see a massive surge in deposits in the wake of Modi government’s demonetisation move that sent out 86 per cent of the currency in circulation. Much of the money that came into the banking system after demonetisation has moved out. The recent acute cash shortage reported by banks from various parts of the country was also blamed on the ongoing trend of withdrawal of excessive money from the banks while deposits fell.
Banks had reported a total deposit of Rs 15.28 lakh crore after demonetisation — almost the entire value of demonetised currency. This had pushed the aggregate deposits in the banks by 15.8 per cent for the fiscal ending March 2017 to Rs 108 lakh crore.
The fiscal ending March 2018 reported the total deposit of Rs 114 lakh crore. This translated into an increase of 6.7 per cent over the last fiscal.
On the other hand, there was growth in other financial instruments. The first premiums (meaning new policies) for insurance investments have increased from Rs 1.75 lakh crore in March 2017 to Rs 1.93 lakh crore in March 2018. The corresponding figure for fiscal ending March 2016 was Rs 1.38 lakh crore, said a report in the India Today (IT).
Mutual funds assets have reported a growth of about 22 per cent between March 2017 and March 2018 – the period during which bank growth rate touched the lowest in five decades. However, there is a catch: the mutual fund assets had grown by 42 per cent – from Rs 12.33 lakh crore to to Rs 17.55 lakh crore – the previous fiscal, that is, between March 2016 and March 2017, said the IT report.
The low bank deposit growth could bring some good news for the customers in the form of increased rate of interest on deposits. The process has already begun. HDFC Bank has already announced a hike in interest rate by up to 100 basis point (0.01%) on fixed deposits for certain tenures, reported ET.