Banks Roll Out Novel Deposit Plans to Attract Savers as Credit Growth Outpaces Deposits
As credit demand from customers continues to climb, banks across the country have stepped up efforts to mobilize funds through innovative deposit schemes. With deposit accretion slowing compared to the rapid rise in lending, several lenders are feeling the pinch to meet borrowing requirements in the system.
Official data reveals that while year-on-year credit growth was around 15% in July, deposits grew by just over 10%. Major banks like State Bank of India and Bank of Baroda reported a fall in deposits during the June quarter from the previous three months. Current and savings accounts, which are a cheaper source of deposits for banks, also registered a decline.
In response, many banks debuted time-bound fixed deposit plans offering higher interest rates. For example, SBI introduced a 444-day scheme giving 7.25% returns. Bank of Baroda launched a similar limited period offer. Private lenders have also rolled out special programs to attract savers. Meanwhile, customers are displaying greater appetite for investments in capital markets where returns have significantly outpaced bank rates in recent times.
The narrowing gap between loans and deposits has pushed up banks' cost of raising funds. This has compelled some to marginally increase lending rates. Regulators have asked lenders to make deposit mobilization a priority through novel offerings and leveraging their extensive branch networks. The government too wants a renewed focus on building ‘small deposits', the traditional bread and butter of banks.
While mutual funds have drawn significant sums due to strong performance, analysts say bank deposits and such schemes don't actually compete since money stays within the financial system. With the credit growth trend expected to continue, banks will have to devise innovative ways to boost deposit accretion to sustain their intermediation role in the economy.
