The abrupt increase and subsequent slump in deposits of all scheduled commercial banks (ASCBs) in the fortnight ended November 5, and the preceding fortnight ended November 19, respectively, are contrarian trends, according to the State Bank of India’s economic research report, Ecowrap.
“While it may be exactly difficult to decipher the increase and subsequent decline, 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,” said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.
Referring to an increase of ₹3.3-lakh crore in deposits in the fortnight ended November 5, Ghosh observed that this has never happened during a Diwali week as there is always a currency leakage and concomitant deposit decline. This is also the fifth largest increase in any fortnight in the last 24 years, he added.
The report noted that such huge incremental addition has happened only a few times, with higher deposits accretion (than the current year’s fortnight) occurring during the fortnight ended November 25, 2016 (₹4.16-lakh crore), September 30, 2016 (₹3.55-lakh crore), March 29, 2019 ( ₹3.46-lakh crore), and April 1, 2016 (₹3.41-lakh crore).
However, the increase in November 2016 was because of demonetisation and the March and April fortnightly increases could be attributed to seasonal year-end bulge. In this respect, the current deposit bulge requires a detailed explanation, Ghosh said.
Deposit build-up and market rally
Referring to ₹2.70-lakh crore slump in deposits during the fortnight ended November 19, 2021, Ghosh believes that it is possible there was a large influx of deposits into the banking system for the fortnight ended November 5, 2021, in anticipation of a buildup in stock market rally post primary issuances of new age companies and others.
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However, when such rally did not materialise, the bulge in banking deposits slumped and almost 80 per cent of the deposit bulge was withdrawn.
Ghosh said interestingly, the amount of money parked in fixed reverse repo window jumped from ₹0.45-lakh crore on October 19 this year to ₹2.4-lakh crore on November 17, and has remained at such level till December 1. However, the significant jump in digital transactions has also resulted in lower usage of cash in current fiscal, and ideally could also have resulted in a surge in deposits for the Diwali week.
Growth in deposits
The report said though the deposits growth remained the same in Q2 (2.6 per cent) as compared to Q1 (2.5 per cent), sequentially at all-India level, apart from Metro regions, it has decelerated quarter over quarter (q-o-q), particularly in rural areas, indicating the current economic recovery is mostly urban-led and rural economy is still recouping.
Meanwhile, the ASCB’s credit has increased by ₹1.18-lakh crore (7.1 per cent y-o-y) during the fortnight ended November 5, which may be due to festive demands.