Banks' deposit flow shifted to equity

Observed effect of boom in stock market

Mumbai: The pull of liquidity on one hand and the rally in the stock markets on the other hand has reduced the deposit flow in the country's banks due to which the situation has become challenging for the banks. Instead of putting their savings in bank deposits, savers are now turning to equity markets that provide higher returns. Instead of putting their savings in bank savings accounts or fixed deposits, savers are investing it in higher-returning instruments like equities through mutual fund schemes, banking sources said.

With the development of technology, it has now become easier for savers to invest money in various investment instruments. The combined current account savings account (CASA) ratio of all commercial banks in the country, which was 45.20 percent in March 2022, fell by five percentage points to 40.50 percent at the end of the 18 months ending September 2023.

One of the reasons for the decline in the CASA ratio is the increase in the rate of fixed deposits. But savers, especially urban savers, are also shifting towards investment instruments like equities instead of fixed deposits.

As a result of digitization, it has become easier for savers to access information about more and more investment instruments, which has had an impact in the form of reduction in fixed deposits.

In January of the current year, inflows in equity mutual funds stood at a 22-month high of Rs 21,781 crore. Sources in the Association of Mutual Funds in India (AMFI) recently said that January saw the 35th consecutive month of net inflows.

The asset under management of the country's mutual fund industry has also increased to cross Rs 52.70 lakh crore. The number of Systematic Investment Plans (SIP) accounts has also been more than 7.90 crore.

Sources also added that the biggest decline in CASA ratios is being seen in private banks as the country's younger generation is tech-savvy and prefers to invest in investment instruments with higher returns than banks.

Banks do not see deposit growth as per credit growth which is becoming a matter of concern. Banks are forced to raise interest rates to get more deposits, which is putting pressure on their margins.