Banks’ Strategies Amid Slower Deposit Growth
- August 19, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Banks’ Strategies Amid Slower Deposit Growth
Sub: Eco
Sec: Monetary Policy
- Slower Deposit Growth:
- Banks are witnessing a slowdown in deposit growth as customers explore alternative investment avenues like capital markets for better returns.
- SBI’s deposits fell to Rs 49.01 lakh crore in the June 2024 quarter, down from Rs 49.16 lakh crore in March 2024.
- Similarly, Bank of Baroda saw deposits decrease from Rs 13.26 lakh crore to Rs 13.06 lakh crore in the same period.
- CASA Deposits Decline:
- CASA (Current Account and Savings Account) deposits also declined, with SBI’s CASA deposits falling to Rs 19.41 lakh crore from Rs 19.14 lakh crore in March 2024.
- Credit Growth Outpaces Deposits:
- Credit growth has outpaced deposit growth, rising by 15.1% as of July 2024, compared to 14.6% a year earlier.
- Deposit growth, however, declined to 10.6% from 12.9% in the same period.
- Banks Launch Special Schemes:
- To counter the decline in deposits, banks are launching special term deposit schemes to attract depositors.
- For example, SBI launched ‘Amrit Vrishti’, offering 7.25% interest on deposits for 444 days.
- Bank of Baroda introduced the ‘Monsoon Dhamaka’ deposit scheme, with interest rates of 7.25% for 399 days and 7.15% for 333 days.
- Advice to Banks:
- RBI Governor urged banks to mobilize deposits through innovative product offerings and to leverage their wide branch networks.
- Focus on Small Deposits:
- Finance Minister Nirmala Sitharaman emphasized the need for banks to focus on mobilizing small deposits, which are essential for sustainable lending.
- Impact on Lending Rates:
- The slower deposit growth has led to an increase in the cost of funds, causing banks like SBI to raise their marginal cost of funds (MCLR) by up to 30 basis points in certain tenors.
- Mutual Funds vs. Bank Deposits:
- Mutual funds have provided higher returns than bank deposits, leading to a shift in household savings towards the capital markets.
- However, mutual fund industry experts argue that this shift won’t impact banking system liquidity, as the money remains within the system.
- Growing Retail Participation in Mutual Funds:
- Systematic Investment Plans (SIPs) have become increasingly popular, with contributions reaching an all-time high of Rs 23,332 crore in July 2024.
- Themutual fund industry’s net assets under management reached a record Rs 64.97 lakh crore by July 31, 2024.