‘Households’ share in savings deposits has risen post note-ban’

Demonetisation appears to have produced a permanent shift in deposit behaviour with households’ preference shifting to savings deposits and away from term deposits, according to a Reserve Bank of India study.

The composition of households’ deposits shows that at 41.7 per cent, the share of savings deposits in the total deposits of households, reached a new high in March against 41.1 per cent and 36.9 per cent in March 2017 and March 2016, respectively.

The share of term deposits in the total deposits of households declined to 52.5 per cent in March against 53 per cent and 57.7 per cent in March 2017 and March 2016, respectively.

“This suggests a premium on liquidity induced by the (demonetisation) shock, partly incentivised by lower rates of returns on term deposits and alternative avenues of saving which combine the benefits of liquidity and returns,” according to an article authored by Tarun Kumar Saxena and Thoppil Bhargavan Sreejith, officers with the Department of Statistics and Information Management, in the RBI Bulletin.

Households consist of individuals [including Hindu undivided families], trusts, associates, clubs, proprietary and partnership concerns, educational and religious institutions, self-help groups, NGOs and other such entities.

In 2016-17, an overwhelming share (66.2 per cent) of incremental deposits took the form of savings deposits in sharp contrast to the average share of 27.5 per cent during the 15-year period 2001-2016. Correspondingly, term deposits accounted for less than 20 per cent of incremental deposits as against an average share of around 63 per cent 2001-16.

Savings deposits growth

“During 2017-18, the growth of savings deposits remained robust, indicating a degree of hysteresis (an event in history that affects the value of a current issue) in depositors’ preferences,” said the authors. In 2017-18, savings deposits accounted for 47 per cent of incremental deposits while term deposits accounted for 41.8 per cent.

As per the ownership of deposits, the household sector has accounted for 60 per cent of deposits with the Indian banking system in recent years. The share of the household sector increased significantly during 2016-17 (to 63.2 per cent from 61.5 per cent in 2015-16) and stayed at the same level up to March 2018 (63.3 per cent), although the growth of its deposits moderated in 2017-18 from the demonetisation-induced growth.

The household sector typically holds more than half of its deposits in term deposits and over one-third in savings deposits. However, deposit of SBNs in their savings bank accounts generated a sudden jump in their share of savings deposits in 2016-17 and 2017-18.

The authors observed that monitoring of the composition and ownership of deposit mobilisation throws valuable insights for designing appropriate policy responses in order to secure financial stability while ensuring adequate flows to productive sectors of the economy.

The overall behaviour of households’ bank deposits in the recent period has also been affected by schemes such as Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and the Atal Pension Yojana.

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