Deposit growth tapers as investors put money in gold, MFs

Data shows that AUM in liquid funds has increased 51% m-o-m

With credit growing slowly for several quarters, banks face declining deposits as both individual and corporate investors are taking money out of their account to invest in other avenues.

According to the latest Reserve Bank of India data, deposits in the banking system have shrunk by 0.28 per cent between October 31 and November 14 this year. On a year-on-year basis, though, deposits have swelled 12.1 per cent to Rs 82.5 lakh from Rs 73.5 lakh in the corresponding period last year.

The money withdrawn from banks is being invested in gold and liquid mutual funds.

The rate at which deposits have been increasing has also tapered off.

According to RBI data, on April 18, deposits in the system were growing at a pace of 15.31 per cent, compared with the corresponding period last year. However, in the last three fortnights, deposit growth rate has been hovering in the range of 12-12.6 per cent.

“Deposits have been slightly under pressure as consumers have been pulling out money for the festival season,” said Arundhati Bhattacharya, chairman, State Bank of India.

However, bankers don’t see this trend limited to the festival season.

Another senior State Bank of India executive said banks flush with funds are also not encouraging new deposits. “Apart from this, the retail customers are also using money to buy equity shares and gold. On the corporate front also, for want of investment opportunities in business, some corporate treasuries are moving money in deposits to debt schemes of mutual funds to benefit from falling bond yields,” he added.

According to Association of Mutual Funds of India data, the assets under management (AUM) in liquid funds have increased by 51 per cent on a month-on-month basis. At the end of October, AUM in liquid funds had grown to Rs 27.8 lakh-crore from Rs 18.5 lakh-crore in September this year.

Currently, banks are sitting on surplus cash when the credit demand is tepid. But that is hardly a solace for bankers. They are apprehensive about the growth rate of deposits coming under pressure.

Sumit Bali, executive vice-president, personal assets, Kotak Mahindra Bank, said: “We are also concerned about the rate of deposit growth coming down in the system. It will continue to be a challenge in the coming months as usually it is around this time that people pull out money for tax and other investments.”