At Rs 6 lakh crore, banks’ fresh FDs in Q1 double from last year – Times of India

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MUMBAI: Banks have seen money in fixed deposits (FDs) increase by Rs 6.1 lakh crore during the period April to July 3. This is more than twice the Rs 3 lakh crore of FDs added by banks during the same period in the previous financial year.
An increase in FDs is an indication that investors expect interest rates to come down further. It is also reflective of risk-aversion. From the deposit numbers of the large banks that have declared their results so far, it is seen that the share of FDs is either rising or is steady.
In the case of HDFC Bank, which has seen deposits grow 24% year on year in the first quarter, the current account-savings account (CASA) ratio slipped to 40.1% from 42.2% in March. For Axis Bank, the CASA ratio, which was 41.2% in March, is now 40.9% at the end of the first quarter. Kotak Mahindra Bank has shown a marginal improvement with the CASA ratio rising to 56.7% from 56.2%. ICICI Bank’s CASA for the first quarter was 41%, down from 42.7% for FY20. State Bank of India (SBI) has also shown growth from 45.1 to 45.3%.
For FY20, bank deposits accounted for 52.6% of household savings, followed by life insurance (23.2%), currency (13.4%) and mutual fund holdings (7%). Given the slowdown in insurance and mutual fund savings, there is a strong likelihood that the share of bank deposits in household savings could rise.
However, gross numbers for the banking system show that there is an overall decline in the share of FDs in total deposits. According to a report by CARE Ratings, time deposits account for 89.4% of aggregate deposits (89.5% share in July 2019), growing at a slower pace compared to demand deposits, which account for the balance 10.6% (10.5% share in July 2019).
Since the Covid-19 pandemic broke, the Reserve Bank of India (RBI) has been systematically easing liquidity in the system. This has resulted in banks ending up with surplus liquidity. This, in turn, has forced banks to bring down deposit rates. SBI’s best deposit rate for non-senior citizens is 5.4%. Despite bringing down interest rates, SBI has added Rs 1.8 lakh crore to its deposit base between April and June 2020.
To deal with the surplus liquidity, the RBI has undertaken term (fixed-rate) reverse repo auctions in order to allow banks to park any excess funds with the central bank. There are indications that deposits’ growth is tapering off in the second quarter. Deposits’ growth dipped marginally by 20 basis points (100bps = 1 percentage point) to 10.8% (as of July 17, 2020) compared to previous fortnight ended July 3.
However, the growth rate continues to be robust, indicating that there is scope for further reduction. The banking system daily average liquidity stood at Rs.6.5 lakh crore during the last two fortnights ended July 17, 2020 and July 3, 2020, said CARE.