Ratio of small financial savings deposits to financial institution deposits inching up: report

NEW DELHI: In February this yr, small saving deposits stood at ₹9.9 trillion, which is simply a small fraction of SCB deposits that totalled to ₹170.2trillion, as per a report by Bank of Baroda.

“In phrases of incremental deposits as nicely, whereas deposits by SCB’s have elevated by ₹55.4 lakh crores over the past 5 years, small saving deposits have solely elevated by ₹4.6 lakh crore,” the report, authored by economist Aditi Gupta, confirmed.

However, the silver lining is that the ratio of small financial savings time period deposits to banking time period deposits or the identical for financial savings account deposits have been rising progressively however repeatedly over the previous few years.

Data reveals that the ratio of small financial savings deposits to financial institution deposits has inched up from 4.4% in FY17 to five.8% in FY22. “While the share remains to be very low, the gradual rise is important,” the report said, adding that the higher interest rate offered by small savings schemes could be the main reason for this increasing ratio.

After an almost 2-year stagnant rates regime, interest rates on some of the small savings schemes have been hiked by 10-30 basis points in the past few months. On the other hand, bank savings deposit rate continues to remain at a low of 2.7% even as term deposit rates have been hiked to some extent. “Even the term deposit rate of 1 year maturity fetches a lower rate of interest than the corresponding small saving instruments,” the report mentioned.

One of the explanations for the heightened curiosity in small financial savings deposits over conventional financial institution deposits is the upper rates of interest, Gupta famous within the report.

“…small financial savings schemes provide the next fee of curiosity than that provided on the corresponding financial institution deposits. This is true each for financial savings deposit charges in addition to time period deposits of 1 yr maturity. For financial savings deposits, each SCBs and small financial savings scheme provided the identical fee of 4% in FY17. However, whereas banks successively decreased the financial savings deposit fee to 2.7% in FY22, for put up workplace deposits, it has remained unchanged at 4%. Similarly for time period deposits of 1 yr maturity, each SCBs and small saving schemes provided an rate of interest of 6.8% in FY17. This was decreased sharply by FY21 to five.2% for SCBs, whereas for small financial savings schemes it truly elevated to six.9%. In FY22, the deposit fee for SCBs elevated to five.3%, however it nonetheless remained decrease than the corresponding rate of interest provided by small financial savings scheme at 5.5%.”

“Banks proceed to stay the popular alternative for shoppers in comparison with small saving schemes. However, small financial savings have the profit on the margin of providing increased charges as these are adjusted solely periodically and linked to market charges. Often within the downward cycle, the federal government chooses to not decrease their charges which make them enticing for the households,” Gupta mentioned.

Catch all of the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
Download The Mint News App to get Daily Market Updates.

More
Less