The Hindu Business Line : ‘Fixed deposits are already dead’

Chennai, April 17 “The Fixed Deposit as an instrument is dead. There was a time when it was very popular with retirees and those approaching superannuation. Now even if the Reserve Bank of India were to allow free access to such deposits, there won’t be too many takers. The stock market boom over the past few years, the dominance of mutual funds and ULIPs has almost eliminated this investment option,” says a senior NBFC industry official. He was reacting to the news that the RBI is thinking of limiting access to deposits only to banks.

The RBI has not been comfortable with Non Banking Finance Companies (NBFCs) since 1998. The RBI did not want to be protector of public deposits – a role thrust on it when NBFCs faced a crisis. It tightened the regulatory norms for NBFCs and tried to limit access to fixed deposits window by introducing ratings and fixing the limits to such borrowings. These efforts have borne fruit over the last decade.

The number of such deposit taking entities has come down drastically since then. Over the last five years, the entities have come down by half to about 401 as of March 2007. The volume of such deposits has also shrunk from a little over Rs 5,000 crore to about Rs 2,000 crore as of March 2007. It is in this background that the RBI is now contemplating limiting the public deposits window to banks alone.

So will anyone be affected if the move comes through? NBFC industry officials think a few small NBFCs will find intermediation costs going up.

They will have to perforce approach banks who may charge higher rates. The larger companies are already diversified in their funding sources and will not have a problem, feel industry insiders.

More Stories on : Fixed Deposits | Trends | NBFCs

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page