Bank FDs sahi hai!

Union Finance Minister (FM) Nirmala Sitharaman last week asked public-sector banks to make concerted efforts to mobilise deposits through special drives.

This is because deposits have been lagging behind loan growth. By July-end deposits grew 10.6 per cent year-on-year compared to 13.7 per cent growth in loans. Worse, according to the Reserve Bank of India (RBI), the lowcost current and savings accounts (CASA) of banks had declined from 43 per cent of the total deposits a year ago to 39 per cent this financial year. About 10 days before the FM met the bankers, she had pointed out lenders needed to focus on raising smaller deposits that came in "trickles" but were the "bread and butter" of the banking system. Again the concern was the widening gap between deposits and credit.

Why are bank deposits not increasing in an economy with a 7-8 per cent growth rate in gross domestic product, double-digit revenue collection from taxes, and massive capital expenditure by the government? The most popular theory is that savers are taking their money out of banks and investing it elsewhere. Apparently, this is especially common among the young, who prefer riskier assets like mutual funds and equities. Nearly 47 per cent of term deposits are now held by senior citizens.