Deposit growth lags behind credit drawdown

The banking system has so far seen weaker growth of 4.9% in deposits in the current fiscal year, while credit drawdowns have jumped 8.1% since April 2022.

Bank deposits have increased by Rs 15.17 lakh crore since April 2022 to Rs 172.72 lakh crore, according to the latest RBI data. Growth in deposits during the same period last year was Rs 14.53 lakh crore. “The slower growth in deposits relative to the increase in credit drawdowns indicates that competition will intensify among banks to collect deposits at a time when interest rates are rising,” a source said. high-level banking.

Year-on-year, credit drawdown increased by 17.9% compared to 6.5% a year ago. On the other hand, deposits increased by 9.6% against 10.2% year-on-year.

According to a report by Bank of Baroda, with the changing financial landscape, volatility in the interest rate regime and increased risk appetite, the deployment model of financial savings has tended to change. RBI’s recent report on Household Financial Assets shows that there has been a change in pattern, where mutual funds and equities saw a sharp rise in FY22 with shares of 6, 3% and 1.9% respectively in total financial assets (the ratio was 2.6% and 1.1% in FY20), while the share of bank deposits fell to 25.5 % in FY22, compared to 34.4% in FY20.

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Report Indicators Change Model

According to a report by Bank of Baroda, with the changing financial landscape, volatility in the interest rate regime and increased risk appetite, the deployment model of financial savings has tended to change.

However, it must be pointed out that the quantum of bank deposits is much larger, about 4.1 times that of mutual funds denoted by AUM (assets under management). In this context, we examine whether there has been a substitution between bank deposits, mutual funds-debt and equity over the past 6 years, according to Dipanwita Mazumdar, Economist, Bank of Baroda.

Since FY16 (until September 2022), total bank deposits increased by Rs 77 lakh crore. Under this, term deposits increased by Rs 66 lakh crore.

A secure interest rate regime and a sense of risk aversion worked in favor of collecting bank deposits at a faster pace, the BoB said.

Bank deposits would face competition from mutual funds as households gain better market knowledge and are ready to try their luck in the capital market. “Mutual funds offer a safer way by pooling resources and investing the same based on professional judgment. Within various mutual fund regimes, debt funds have still not established themselves over equity and hybrid funds. A rather underdeveloped secondary market and a more complex market to understand could be the reasons for this phenomenon,” BoB said.