Labeling the myth of flagging deposit growth as just a statistical myth, the study by the State Bank of India Research suggests that deposit growth in the banking sector has outpaced credit growth in the last three years. The report has revealed that incremental deposit growth at Rs 61 trillion has outperformed credit growth at Rs 59 trillion since the financial year 2022 (FY22).
In FY23, all scheduled commercial banks registered the highest absolute growth in deposits and credit since 1951-52. Deposits grew by Rs 15.7 lakh crore and credit by Rs 17.8 lakh crore, pushing the incremental credit-deposit ratio to 113 per cent. The report stated that the trend continued in FY24 as the deposits grew by Rs 24.3 lakh crore and credit by Rs 27.5 lakh crore.
On the other hand, the current account savings account (Casa) deposits declined from 43.5 per cent in FY23 to 41 per cent in FY24. The savings bank deposits (SB deposits) fell to the pre-pandemic level of 42 per cent.
The compositional shift in deposit growth is being driven by the rising returns on the term deposits. The report stated that the share of term deposits in total deposits has risen to 59.0 per cent in FY24 from 56.5 per cent in FY23. On an incremental basis, term deposits accounted for nearly 78 per cent of the total deposits in FY24 though the shares of Casa deposits have declined from its 2023 levels.
However, the report highlighted three key issues related to deposit growth namely growth in reserve money (RM), leakages and regulatory dispensation. As per the report, the RM growth has declined to 5.6 per cent on a year-on-year basis (YoY) in March 2024 as against 7.8 per cent a year ago, which may be due to the decline in currency in circulation (CIC) to 3.9 per cent in FY24, compared to 7.8 per cent in FY23 as the withdrawal of Rs 2000 banknotes has contributed to the decline.
Leakages (efflux) are another big contributor, as per the report. SCBs have garnered deposits worth Rs 24.3 trillion in FY24, of which 55 per cent came from households. However, there are leakages from deposits in various forms, as also deposits being appropriated rendering them unavailable for discretionary commercial lending by SCBs.
The SBI research’s report estimates that the leakages from the system could be around Rs 7.5 trillion under base case scenario, out of which Rs 2.1 lakh crore could be due to tax on interest income on deposits (Rs 76,000 crore) and self-assessment tax (Rs 1.29 lakh crore).
Regulatory dispensation plays a major role as far as the growth is concerned. After deducting all the pre-emptive regulations, banks are left with only Rs 41.9 for commercial lending with every deposit of Rs 100. Of this Rs 41.9, almost Rs 15 leakage in the form of currency with public along with government cash balances takes place.
The report highlighted that bank deposits fare low on the returns parameter. 47 per cent of term deposits are now held by senior citizens, implying the younger cohort is increasingly shying away from traditional avenues like bank deposits.
In contrast, the median age of all investors in capital markets is now 32 years with 40 per cent of investors being less than 30 years. The report suggests that the government should tweak the ‘tax on interest on deposits and delink tax treatment at the highest income bucket and tax treatment should be at redemption and not at accrual basis for bank depositors.
