Deposits with banks declined by ₹23,407 crore in the fortnight ended August 12, 2022, even as credit extended by them rose by ₹64,981 crore. In the reporting fortnight, demand deposits declined by ₹67,143 crore, while time/fixed deposits rose by ₹43,736 crore.

Banking expert V Viswanathan observed that since banks are increasing FD rates, depositors may be shifting a portion of their savings account balances into FDs and also placing deposits with non-banking finance companies, which offer higher interest rates. Further, depositors may be investing in mutual funds for better returns.

With deposit growth lagging credit growth, besides increasing FD rates, banks are also augmenting their resources by raising funds via Certificate of Deposits (CDs). In the fortnight ended August 12, 2022, banks mopped up ₹23,947 crore at a rate of interest of 5.59-6.35 per cent.

Experts say sooner or later, banks may reach a stage where they may be have to up the savings bank deposit rates. Currently, banks, on average, pay 2.70-3 per cent on SB deposits.

Since the beginning of the second quarter and up to August 12, 2022, outstanding deposits with banks declined by ₹14,045 crore, while outstanding credit has gone up by ₹49,599 crore.

Since the March-end 2022 and up to August 12, 2022, bank credit growth has outpaced deposit growth. During this period, bank credit has grown by ₹5,41,701 crore against deposit growth of ₹4,75,174 crore.

State Bank of India’s economic research department, in a recent note, assessed that with capacity utilisation nearing 75 per cent, investment activity is expected to strengthen further, driven by rising capacity utilisation, government’s capex push and deleveraged corporate balance sheets.

The decline in deposits is due to the trend in every alternative fortnights, which may be due to salary withdrawals in the first fortnight of every month for recurring consumption purposes, per the note.