With better returns offered by tax-free bonds and liquid mutual funds, State Bank of India (SBI) has witnessed a flight of deposits worth over Rs 15,000 crore in the last few weeks.
The bank was sitting on a surplus fund of Rs 55,000 crore. “There has been a depletion of about Rs 15,000 crore in the recent past, as depositors have moved money into tax-free bonds and liquid mutual fund,” Chairman Pratip Chaudhuri said.
The movement is basically happening on account of tax and other benefits that mutual funds and tax-free bonds offer.
Tax sops work to the disadvantage of deposits as a financial instrument, Chaudhuri said, adding individuals as well as high net worth customers had pulled out money.
Another SBI official said depositors had taken out part of amounts parked in current and savings accounts (Casa) to invest in tax-free bonds and mutual funds.
Prithvi Haldea, chairman and managing director of Prime Database Group, an information management company, said the tax-free bonds were of interest only to those in the high income-tax bracket. Else, the interest is limited.
The institutions allowed to use tax-free bonds have raised over Rs 3,300 crore through private placement of these bonds till date in 2012-13. Through public issue of bonds, Rural Electrification Corp has raised Rs 2,017 crore, while India Infrastructure Finance Corp mopped Rs 2,883 crore, according to Prime Database.
According to Chaudhuri, most of fund-raising through tax-free bonds by institutions is now over. “There may be stability (for deposits flows) in the balance period of the financial year (till March 2013).”
For SBI, the share of Casa in the total deposit base declined to 44.95 per cent in September from 47.43 per cent at the end of September 2011. The year-on-year deposit growth is 17 per cent till the end of December, similar to annual credit growth till the end of the third quarter, Chaudhuri said.
The increasing gap between the pace of credit expansion and deposit growth has been a matter of worry for the banking regulator and lenders in 2011-13.
The pace of annual deposit growth for the banking industry has moderated to 13.3 per cent till mid-January from 16.7 per cent a year ago, according to the Reserve Bank of India.