Money & Banking

Job losses, pay cuts impact? Bank deposits sink ₹74,727 cr as of June 19

K Ram Kumar Mumbai | Updated on July 03, 2020 Published on July 03, 2020

Either people are dipping into savings or diversifying into MFs and stocks

Job losses, pay cuts and low nominal deposit rates seem to be pushing people to dip into bank deposits. Deposits of all scheduled banks collectively declined by a whopping ₹74,727 crore in the fortnight ended June 19 against an increase of ₹1,11,242 crore in the previous fortnight ended June 5, according to data published by the Reserve Bank of India.

Madan Sabnavis, Chief Economist, CARE Ratings, said: “In this particular fortnight, I can only think of two reasons for the decline in deposits. One is that because of all this lockdown, the moment your income comes down or you are not getting your regular income, there will be a tendency to withdraw your deposits. That is why the deposit level in the banking system also comes down.”

“Secondly, in the backdrop of the stock market again doing quite well in the reporting fortnight, it is also possible that people, unhappy with the nominal returns in the bank market, would have become bold and invested in mutual funds and directly in stocks,” he added.

This comes even as term deposit rates (of more than one year tenor), as at June 26, declined to 5.10-5.65 per cent against 6.25-7.30 per cent as onJune 28, 2019. If the decline in deposit continues, it will be a worrisome factor as it means that people are withdrawing their savings.

 

“If it is a one fortnight phenomenon, then it is all right. But if we see it happening continuously, then definitely it will be a cause for worry from the point of view of the policy makers,” Sabnavis said.

According to RBI data for six fortnights of the current financial year so far, there was deposit accretion in four and decline in two.

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, in a recent report, had said: “Interestingly, Indian banks have 8.5 deposit accounts per loan account. This data clearly shows the depositors in the banking system far outpace the borrowers.”

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Published on July 03, 2020
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