Tag: bank deposit

In a contrarian trend, aggregate bank deposit slump after abrupt increase in Nov

Banking & Finance

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The sudden slump in aggregate deposits after an abrupt increase is a contrarian trend that has emerged in November, according to Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

As per the provisional data released by RBI for the fortnight ended November 19, all scheduled commercial banks (ASCB) aggregate deposits have slumped by ₹2.7 lakh crore during the fortnight.

The slump in deposits follows an abrupt increase of ₹3.3 lakh crore during the previous fortnight ended November 5.

“Interestingly, such growth in deposits was around 36 per cent of the incremental deposit growth at that point of time. This increase in deposits and subsequent slump is quite a contrarian trend. While it may be exactly difficult to decipher the increase and subsequent decline, it does pose questions on liquidity management/financial stability or a shift in behavioral trend in customer payment habits through digitisation and hence lower currency leakage and concomitant deposit bulge or both,” said Ghosh said in the latest edition of SBI Ecowrap

24-year record

According to Ghosh, the fortnightly increase of ₹3.3 lakh crore has never happened during a Diwali week as there is always a currency leakage and concomitant deposit decline. This is also the fifth-largest increase in any fortnight in the last 24 years.

The fortnightly deposit slump in the subsequent fortnight could be due to a large influx of deposits into the banking system for the fortnight ended November 5 in anticipation of a buildup in the rally in stock markets post-primary issuances of new-age companies and others.

“However, when such rally did not materialize, the bulge in banking deposits slumped and almost 80 per cent of deposit bulge was withdrawn. Interestingly, the amount of money parked in fixed reverse repo window jumped from ₹0.45 lakh crore on October 19 to ₹2.4 lakh crore on November 17 and has remained at such level till December 1,” Ghosh said.

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PSB business correspondent outlets in villages shrink as private banks grow biz, BFSI News, ET BFSI

Banking & Finance

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The business correspondent outlets of public sector banks in villages have shrunk during 2016 and 2020 while private banks have shown positive growth.

“PSBs dominated the number of BC outlets in villages, but during the review period, on account of consolidation, their BC outlets showed negative growth,” according to an RBI study said.

PSBs’ share in BC village outlets has dropped marginally to 57 per cent in 2020 from 60 per cent in 2016.

The growth in BC outlets in villages was also negative for regional rural banks.

The share of PSBs in BC outlets in rural areas has remained consistently above 60% over the years, being the highest among the bank groups.

Western region

For both rural branches and BC outlets in villages, PSBs continue to account for maximum share in the western region. However, for BC outlets in villages, share of PSBs has dropped from 68% in 2016 to 45% in 2020. At the same time, PVBs have increased their share progressively across regions, with manifold increase in BC outlets in villages in NER, eastern and southern regions.

Private banks shine

As PSBs continued to maintain their hold, PVBs too registered a higher growth in both access and usage indicators during the review period. There was a growth in BC outlets in villages for PVBs with the growth being significantly high for the north-eastern, eastern and central regions, surpassing the growth of PSBs and RRBs together.

PVBs also significantly improved their tally of urban BC outlets during the five years with their share growing from 77 per cent in 2016 to 97 per cent in 2020. On similar lines, contribution of PVBs in the total number of BC agents too grew exponentially from 37 per cent in 2016 to 80 per cent in 2020.

The BC model grows

“From being an alternate delivery model, the BC model is emerging as the predominant delivery model. While the growth in number of rural branches remained subdued during the review period, there was a significant growth in BC outlets in both villages and urban pockets providing formal financial services at the doorstep of large number of unserved/underserved population,” the study said.

The study noted that about 56 per cent of total Basic Savings Bank Deposit Accounts (BSBDAs) and 65 per cent of General Credit Cards (GCCs) were channelled through BCs. While BCs of public sector banks (PSBs) dominated the deposit space, private sector banks (PVBs) accounted for a major share in GCCs through BCs.

During the review period, the total transactions routed through BC outlets increased considerably both in terms of volume as well as value, it said.

Credit-related transactions

During 2016-20, credit-related transactions at BC outlets grew for PVBs and RRBs at a CAGR of 66.91 per cent and 31.81 per cent, respectively. This was in line with the trend of increment in the number of BC agents for PVBs over the five-year period. However, during the same period, the ICT-BC Credit/OD transactions for PSBs declined marginally by 1.86 per cent.

Similarly, share of PVBs in credit/ OD transactions at BC outlets rose progressively from 82 per cent in 2016 to 97 per cent in 2020, while the share of PSBs and RRBs reduced significantly.

The number of ICT-BC Credit/OD transactions through BCs recorded an overall CAGR of 60.27 per cent over the review period, with all regions registering a positive growth. The eastern region recorded the highest growth courtesy significantly higher numbers being reported by select PVBs.



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Indians invest record sums in global debt, equities and bank deposits, BFSI News, ET BFSI

Banking & Finance

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Resident Indian individuals invested in overseas assets for a record sum since the central bank opened up the avenue through the Liberalised Remittance Scheme (LRS).

Indians have invested $1.53 billion in debt, equities and bank deposits through the LRS since the pandemic-induced lockdown in March 2020, the highest since 2004-05 when the window was introduced, data on outward remittances released by the central bank showed.

Investment advisors say this trend could accelerate with brokerages such as ICICI Direct and HDFC Securities facilitating direct investments, and mutual funds offering schemes that buy overseas stocks such as Facebook, Alphabet (Google) or Amazon.

“A combination of factors triggered interest among resident Indians to invest in global securities during the pandemic,” said Vijay Chandok, managing director at ICICI Securities. “While diversification of assets prompted them to look overseas, the growth story of new-age companies too was a draw-card. Moreover, investors drew comfort from the familiarity of investing into companies whose platforms they have been using or reading about – like Google, Facebook or Amazon.”

Under the LRS, all resident individuals, including minors, are allowed to freely remit up to $ 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. These include capital account transactions such as investment in debt/equity instruments, deposits and purchase of properties. The permitted remittances also include most current account transactions like expenses on travel, studies, maintenance of relatives, gifts and donations.

“A lot of Indian brokers have started to offer the easy facility of investing abroad through tie-ups. The new class of investors post the pandemic beginning has seen the way tech stocks abroad (mainly US- Nasdaq) have performed and want to participate in that up-move,” said Deepak Jasani, head of retail research – HDFC Securities.

As global economic activity started picking up, so have the investments in equities and debt securities. They more than doubled to $171 million during April-June’21 compared to $84 million in the same period a year ago. Also, investments in deposits rose sharply during the period.

Financial players have launched technology initiatives to take outward remittance services to the country’s micro-markets. Emkay Global Financial Services recently tied up with Stockal – a global investment platform – to help its clients invest in US-listed stocks and securities.

“Diversification is critical as it reduces risk and helps optimise the gains,” said Ashish Ranawade, Head of Products, ‎Emkay Wealth Management. “The US markets, through equities and exchange-traded funds, offer one of the most interesting avenues to diversify.”



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Indians invest record sums in global debt, equities and bank deposits, BFSI News, ET BFSI

Banking & Finance

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Read More/Less


Resident Indian individuals invested in overseas assets for a record sum since the central bank opened up the avenue through the Liberalised Remittance Scheme (LRS).

Indians have invested $1.53 billion in debt, equities and bank deposits through the LRS since the pandemic-induced lockdown in March 2020, the highest since 2004-05 when the window was introduced, data on outward remittances released by the central bank showed.

Investment advisors say this trend could accelerate with brokerages such as ICICI Direct and HDFC Securities facilitating direct investments, and mutual funds offering schemes that buy overseas stocks such as Facebook, Alphabet (Google) or Amazon.

“A combination of factors triggered interest among resident Indians to invest in global securities during the pandemic,” said Vijay Chandok, managing director at ICICI Securities. “While diversification of assets prompted them to look overseas, the growth story of new-age companies too was a draw-card. Moreover, investors drew comfort from the familiarity of investing into companies whose platforms they have been using or reading about – like Google, Facebook or Amazon.”

Under the LRS, all resident individuals, including minors, are allowed to freely remit up to $ 250,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. These include capital account transactions such as investment in debt/equity instruments, deposits and purchase of properties. The permitted remittances also include most current account transactions like expenses on travel, studies, maintenance of relatives, gifts and donations.

“A lot of Indian brokers have started to offer the easy facility of investing abroad through tie-ups. The new class of investors post the pandemic beginning has seen the way tech stocks abroad (mainly US- Nasdaq) have performed and want to participate in that up-move,” said Deepak Jasani, head of retail research – HDFC Securities.

As global economic activity started picking up, so have the investments in equities and debt securities. They more than doubled to $171 million during April-June’21 compared to $84 million in the same period a year ago. Also, investments in deposits rose sharply during the period.

Financial players have launched technology initiatives to take outward remittance services to the country’s micro-markets. Emkay Global Financial Services recently tied up with Stockal – a global investment platform – to help its clients invest in US-listed stocks and securities.

“Diversification is critical as it reduces risk and helps optimise the gains,” said Ashish Ranawade, Head of Products, ‎Emkay Wealth Management. “The US markets, through equities and exchange-traded funds, offer one of the most interesting avenues to diversify.”



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Stretch dates for better rates

Personal Finance

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Falling interest rates on bank FDs have been pinching investors for quite some time now. Investors with some appetite for risk flocked towards small finance banks in search of better rates. The ones comfortable with higher risk choose deposits offered by NBFCs and other corporates. For those looking for better rates, there is another way out – special deposits.

Some banks offer a tad higher interest rate on FDs of certain special tenures. For instance, Equitas Small Finance Bank offers an FD for 888 days (a bit over 2 years and five months). The interest rate on this deposit is 6.5 per cent per annum. It offers 6.35 per cent per annum both on its deposits of greater than 2 years to 887 days and on deposits of 889 days and above. Since seniors get a flat 0.5 per cent additional rate on all deposits of Equitas SFB, they can benefit more from this special tenure FD.

DCB Bank offers a special rate for deposits with a tenure of 700 days (23 months). This deposit can fetch you 6.4 per cent per annum. Compared to this, the bank’s other deposits with tenures of 15 months and beyond, up to less than 3 years (except 700 days) offer only 6 per cent per annum. Seniors get 50 basis points (bps) higher interest across all tenures. Note that, you must deposit a minimum of ₹10,000, across deposits of all tenures.

Similarly, Axis bank offers a rate of 5.15 per cent for FDs with tenure of 1 year and 5 days to 1 year and 10 days. On all other deposits with tenure greater than 1 year (up to 1.5 years) the rate of interest is 5.1 per cent.

Just a day longer

A few other banks have higher rates for select range of tenures. In these cases, by expanding your investment tenure by just a day, you can avail higher interest rates on your bank FDs.

For instance, AU Small Finance Bank offers 6.1 per cent per annum on FDs with tenure ranging from 12 months and 1 day to 15 months. This is higher than the 5 per cent on deposits of up to 1 year and the 6 per cent offered on tenures beyond 15 months and up to 2 years.

If you have a slightly longer horizon, you can consider the bank’s FD for 2 years and 1 day which can fetch you 25 basis points higher interest rate per annum than a 2-year deposit.

Even with HDFC bank, by stretching the deposit tenure for a day beyond two years, you can earn 25 basis points higher rate, that is 5.15 per cent per annum.

ICICI Bank offers 4.9 per cent on deposits with a tenure of up to 1.5 years, beyond which the rates are 10 basis points higher i.e. 5 per cent per annum for tenures of up to 2 years. A deposit for even a day longer than 2 years can fetch you 5.15 per cent per annum.

Word of caution

However, do keep a check on the bank’s financials and do not base your investment decision solely on the rate of return offered. For instance, while DCB Bank offers higher rates, in the recent March quarter it reported a spike in its GNPA (gross non-performing assets) to 4.09 per cent from 2.46 per cent a year ago. This is expected to deteriorate further in the coming quarters with the second wave of the pandemic hampering collections. While the bank is adequately capitalised (CRAR of 19.67 per cent), its provisions cover just about 62 per cent of the bad loans as of March 2021.

Also, since the interest rates are bottoming out it would be wise to limit the tenure of your deposits to a maximum of two to three years today. Then, you will be well placed to benefit from higher returns on your FDs when rates go up. Also, be mindful of any restrictions on pre-mature withdrawals on such special FDs.

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The financial condition of PMC Bank continues to be precarious: RBI

Banking & Finance

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The Reserve Bank of India said any generalisation for release of funds to meet ‘financial needs’ of scam-hit Punjab and Maharashtra Co-operative (PMC) Bank’s depositors may not be appropriate and sustainable, owing to the bank’s precarious financial position.

The central bank made the aforementioned observation in its affidavit filed in the Delhi High Court in reply to consumer rights activist Bejon Kumar Misra’s petition.

Also read: Distraught depositors want PMC Bank revived soon

Through the petition, Misra is seeking immediate release of emergency funds to meet financial needs arising out of out-break of second wave of Covid-19 and to declare extension of directions issued to PMC Bank under the Banking Regulation Act 1949 as ultra vires.

In its reply, the central bank said there is no merit in the relief sought by the petitioner for immediate release of emergency funds to meet the financial needs arising out of sudden out-break of second wave of Covid-19, as depositors are already allowed to withdraw up to ₹5 lakh on hardship grounds for treatment of terminal illnesses, including treatment of Covid-19.

The RBI further submitted that to make the process of withdrawal on hardship grounds easier and to avoid delays in sending such recommendation to RBI for approval, the authority for approving the payment under hardship grounds has been delegated to the PMC Bank.

“…it is the duty of PMC Bank to pay hardship amount to the eligible depositors as per directions of RBI and subject to availability of liquidity with PMC Bank,” RBI said.

Takeover/ merger

The RBI submitted that the financial condition of PMC Bank continues to be precarious, with its liquidity position not improving enough to allow much room for enhancement of withdrawal limit.

Further, the bank also needs to maintain bare minimum liquidity to run as a going concern and to make itself viable for prospective investors for takeover/ merger etc. Then the reconstruction of the bank will be feasible, which will be in the interest of larger body of depositors, the central bank said.

Due to precarious financial condition of PMC Bank and on account of significant deposit erosion, serious financial irregularities and mismanagement of affairs of the bank and to protect the interest of the depositors in general and in public interest, RBI had placed PMC Bank under directions vide directive dated September 23, 2019, the affidavit said.

Withdrawal limit

The directions are presently valid up to June 30. The withdrawal limit per depositor is capped at ₹1 lakh.

“It is submitted that all efforts are underway to expedite consultations with the prospective investors who have submitted their final offer, in order to arrive at best possible resolution in the interest of all depositors and other stakeholders of the bank,” the central bank said.

The Centrum Group-BharatPe combine is believed to be the font-runner to takeover PMC Bank.

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Bank lending activity now stronger than last year; credit growth at 6.6% in February

Banking & Finance

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The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Banks gave out credit at a faster rate during the fortnight ending February 12, as compared to the same period last year, helped by an increase in retail loans. The bank credit growth was recorded at 6.6%, marginally higher from the 6.4% recorded last year, a report by CARE Ratings showed. With this, the credit growth is back in the range that was last seen during the early months of the pandemic. The credit growth of banks ranged between 6.5% to 7.2% in April 2020.

Bank credit growth strong

Bank credit during the fortnight ended February 12 stood at Rs 107 lakh crore, up from Rs 105 lakh crore at the end of December 2021 but at par with the previous fortnight ending January 29. “The retail, agriculture and allied segment have driven overall credit growth in January 2021 growing by 6.7% and 9.5% respectively,” the report showed. The retail segment accounted for 29% of the total credit, against the 28.1% share recorded in the year-ago period. Industrial segment, however, had the largest piece of the pie accounting for 29.6% of the total credit. The services sector accounted for 28% of the total.

“Trade and tourism, hotels and restaurant segment registered a (credit) growth of 15.7% and 8.9% respectively,” the report said. The professional services segment registered a de-growth of 25%, computer software segment too registered de-growth, making them the only two segment to slip.

Mutual fund redemptions aid deposit growth

Deposits with banks have also increased during the period under review. “Deposit growth increased during the fortnight ended February 12, 2021, compared with 11.1% growth registered during the fortnight ended January 29, 2021, and also as compared with the previous year,” CARE Ratings said. The report further added that the outflows in debt mutual fund and equity mutual fund could support the rise in bank deposits. Of these deposits, time deposits grew at 89% while demand deposits account for the remaining 11%.

With deposit growth outpacing credit growth in the banking system, liquidity remained in a surplus position. “The outstanding liquidity in the banking system as of February 26 aggregated Rs 6 lakh crore, higher than a month ago level of Rs 5.76 lakh crore,” the report said.

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