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The contrarian trend of abrupt rise and fall in the deposits of all scheduled commercial banks (ASCBs) in the two reporting fortnights last month could be attributed to cash coming back into the banking system after the festival season and investors, who did not get share allotment in initial public offers (IPOs), pulling out their money.
Deposits of ASCBs during the fortnight ended November 5, 2021, increased by ₹3,38,451 crore but declined by ₹2,67,623 crore in the subsequent fortnight ended November 19, 2021.
“Suddenly after the festival, cash started coming back into the banking system. Now, when cash comes back into the banking system, it leads to surplus liquidity.
“Now, this is also a time of IPOs and many investors brought in money, keeping it as deposits with Banks, hoping they will get some subscription. When some of them didn’t get subscription, they exited,” said a Bank economist.
Likewise, towards the latter part of November, there was a MSCI rebalancing, which brought in a large amount of capital flows, explained the economist.
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Aggregate deposits slumped by ₹2.7-lakh crore during the fortnight ended Nov. 19 after a record ₹3.3-lakh crore fortnightly increase during the Diwali weekThe MSCI India Domestic Index saw addition of nine stocks -- Bajaj Holdings & Investment, Bharat Electronics, Godrej Properties, IRCTC, Mindtree, Mphasis, SRF, Tata Power and Zomato -- with effect from November 30, 2021.
Economists say there could be fluctuation in the deposits of the banking system around the time of IPO of the Life Insurance Corporation of India (LIC).
Investors will park money in Banks for subscription for LIC’s IPO. But once the IPO closes, investors who do get share allotment will get their money back and deploy it elsewhere.
LIC IPO is expected in the fourth quarter of FY22 after the announcement of the Union Budget.
Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI), in a recent report, observed that while it may be difficult to decipher the increase and subsequent decline in deposits, it does pose questions on liquidity management/ financial stability or a shift in behavioural trend in customer payment habits through digitisation and hence lower currency leakage and concomitant deposit bulge or both.
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