LOWER DEPOSITS IN BANKS

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Context

• The banking system has witnessed a lower growth of 4.9 per cent in deposits in the current financial year so far. Credit offtake surged by 8.1 per cent since April 2022.
• Note: Banks give credit off-takes to help businesses acquire financing for future projects through the promise of future income and proof of an existing market.

Status

• On a year-on-year basis, credit offtake rose by 17.9 per cent as against 6.5 per cent a year ago. On the other hand, deposits rose by 9.6 per cent as compared to 10.2 per cent on a year-on-year basis.
• The lower growth in deposit, when compared to the higher credit offtake, indicates that competition will hot up among banks to garner deposits at a time when interest rates are on the rise.

Change in the pattern of deployment of financial savings

• RBI’s recent report on financial assets of households show that there has been a shift in pattern, where mutual funds and equity witnessed sharp increase in FY22 with shares of 6.3 per cent and 1.9 per cent in overall financial assets respectively (ratio was 2.6 per cent and 1.1 per cent in FY20), while share of bank deposits declined to 25.5 per cent in FY22 from 34.4 per cent in FY20.
• But the quantum of bank deposits is much larger, about 4.1 times than that of mutual funds denoted by AUM (assets under management).

A secure interest rate regime and risk averse sentiment have worked in favour of garnering bank deposits at a faster pace.

https://indianexpress.com/article/business/economy/deposit-growth-lags-behind-credit-offtake-8239557/#:~:text=The%20banking%20system%20has%20witnessed,to%20the%20latest%20RBI%20data.