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Saving grace

As the broader interest rates have gone up by a substantial 200 to 250 basis points in the last six months,banks are aggressively mobilising retail deposits to meet credit growth,which is growing at around 23%.

Written by Saikat Neogi |
April 11, 2011 3:13:16 am

As the broader interest rates have gone up by a substantial 200 to 250 basis points in the last six months,banks are aggressively mobilising retail deposits to meet credit growth,which is growing at around 23%. But once liquidity settles down,in the first quarter of the current financial year,bank interest rates may start cooling off.

A report by Angel Broking shows that bank deposits are likely to attract higher domestic savings and will grow from R656,251 crore in the financial year 2009-10 to R762,717 crore in the the financial year 2010-11,a growth of around 16%. The report projects that bank deposits will be at close to R1,114,949 crore by 2013. The Reserve Bank of India had projected an annual growth rate of 18% in deposits and 20% in credit for the financial year 2010-11.

Currently,banks are offering around 8.5-9.5% for one year deposits as compared to 8% offered by the Public Provident Fund and post office small saving schemes deposits. As a result,retail investors are moving away from small savings schemes as the report estimates that total deposits in small savings are likely to come down from R123,832 crore in financial year 2009-10 to R117,290 crore in 2010-11. It will marginally pick up once bank interest rates start falling and is projected to be around R124,268 crore by the end of the financial year 2012-13.

Interestingly,despite the volatility in the stock markets,the growth of domestic savings in equity and mutual funds is likely to grow 37.5% from R100,211 crore in the financial year 2009-10 to R137,864 crore in 2010-11 and to around R179,168 crore in 20012-13.

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