Interest in bank deposits revives, says RBI study

Interest in bank deposits revives, says RBI study

Mumbai, May 13: Deposits are regaining flavour with investors. After deposit growth hitting a 53-year-low of 3% in November 2017, it’s now above its historical trendline, a study published by the RBI has said. According to the report, financial inclusion boosts impact on deposit mobilisation in the long-term although returns on the sensex impinge upon its expansion in the short run.
The study cites empirical evidence to show that income as the most important determinant, both in the short and long-run. It calls for a careful appraisal of regulatory reforms and tax arbitrage with efforts to make returns on deposits and capital markets both more market-determined. Although the wedge between deposit and credit growth continues, it has narrowed substantially with deposits rising 10% in FY19 as against a 13.2% growth in advances for the fiscal year.
The study analysed the impact of various changes in the movement of bank deposits over the decades. Another significant factor affecting bank deposit growth is the return on small saving schemes. While their impact is similar to the sensex return, small savings substitute bank deposits in the short-run but supplement them in the long-run, reflecting that limits on income-tax exemption eventually evens out substitution effects and allow income to be the key determinant of both in the long-run. “Accelerating the rate of growth of the economy and disposable incomes hold the key to higher deposit mobilisation by the banking system,” the report says.
In the report, the researches said that while deposits have been accelerating since December 2017, the upswing is occurring around a secular slowing of deposit growth that set in from October 2009.

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