Banks expect deposit growth to fall below 20% in the new fiscal
By Neelima Shankar
Apr 8, 2009
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The falling interest rates in the current scenario are expected to turn the investors towards other investment avenues such as post office savings schemes, provident funds and stock markets thus reducing the growth of bank deposits.

The bank deposit for the current fiscal is expected to grow by less than 20% against the 23-24% growth recorded for 2008-09. Chairman of a PSU bank said, "We have to compete with post offices and other government-administered deposit schemes. If interest rates fall below their rates, it may push the average deposit growth rate to below 20%."

Currently the peak deposit rates in the industry have come down to 8% from 11% in November 2008. Further this rate is likely to decline by another 100 basis points in the coming few days.

The PSU banks have been forced by the government to reduce their lending rates in order to enhance consumer spending and stimulate industrial investment at this time of slowdown. Therefore if the banks cut down their lending rates, deposit rates are bound to come down and that might prompt investors to try other investment options.

During 2007-08 and 2008-09, banks recorded a considerable growth in their deposits mainly because of the rising interest rates that lured investors to shift to bank deposits from post office schemes.

Also the bank deposits were given tax benefits under section 80C of income tax act in 2007-08 that attracted customers towards it. A report by RBI stated, "During 2007-08, accretion to postal deposits decelerated significantly up to November 2007, and, beginning December 2007, there were net outflows from small savings schemes." Even 2008 witnessed the same trend.

Meanwhile the year-on-year growth in time deposit stood at 22.4% as on January 2nd, 2009 against 25.6% growth, a year back. Also the economic slowdown that has affected the incomes of the people is likely to affect the deposit growth as these individuals will toll on their high deposit base during the year.

A senior official in Oriental Bank of Commerce said the bank is expecting a deposit growth of just 21% in the new fiscal as compared to about 25% in deposits for 2008-09.


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