Tag: SBI ecowrap

Deposit growth in alternative fortnights a contrarian trend: SBI Ecowrap

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The abrupt increase and subsequent slump in deposits of all scheduled commercial banks (ASCBs) in the fortnight ended November 5, and the preceding fortnight ended November 19, respectively, are contrarian trends, according to the State Bank of India’s economic research report, Ecowrap.

“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 behavioural trend in customer payment habits through digitisation and hence, lower currency leakage and concomitant deposit bulge or both,” said Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI.

Also see: NBFC NPAs could increase by a third due to tightening of norms: Ind-Ra

Referring to an increase of ₹3.3-lakh crore in deposits in the fortnight ended November 5, Ghosh observed that this 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, he added.

Looking back

The report noted that such huge incremental addition has happened only a few times, with higher deposits accretion (than the current year’s fortnight) occurring during the fortnight ended November 25, 2016 (₹4.16-lakh crore), September 30, 2016 (₹3.55-lakh crore), March 29, 2019 ( ₹3.46-lakh crore), and April 1, 2016 (₹3.41-lakh crore).

However, the increase in November 2016 was because of demonetisation and the March and April fortnightly increases could be attributed to seasonal year-end bulge. In this respect, the current deposit bulge requires a detailed explanation, Ghosh said.

Deposit build-up and market rally

Referring to ₹2.70-lakh crore slump in deposits during the fortnight ended November 19, 2021, Ghosh believes that it is possible there was a large influx of deposits into the banking system for the fortnight ended November 5, 2021, in anticipation of a buildup in stock market rally post primary issuances of new age companies and others.

Also see: FIDC seeks relaxation on IRACP norms

However, when such rally did not materialise, the bulge in banking deposits slumped and almost 80 per cent of the deposit bulge was withdrawn.

Ghosh said interestingly, the amount of money parked in fixed reverse repo window jumped from ₹0.45-lakh crore on October 19 this year to ₹2.4-lakh crore on November 17, and has remained at such level till December 1. However, the significant jump in digital transactions has also resulted in lower usage of cash in current fiscal, and ideally could also have resulted in a surge in deposits for the Diwali week.

Growth in deposits

The report said though the deposits growth remained the same in Q2 (2.6 per cent) as compared to Q1 (2.5 per cent), sequentially at all-India level, apart from Metro regions, it has decelerated quarter over quarter (q-o-q), particularly in rural areas, indicating the current economic recovery is mostly urban-led and rural economy is still recouping.

Meanwhile, the ASCB’s credit has increased by ₹1.18-lakh crore (7.1 per cent y-o-y) during the fortnight ended November 5, which may be due to festive demands.

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

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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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‘The insurance sector and governments need to coordinate to hedge natural disaster risks’

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A public-private solution in the form of a National Disaster Pool, for hedging natural disaster risks, in close coordination with the insurance sector might offer many benefits over government-induced crisis loans and grants, according to Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

“If we consider 2020 floods in India, the total economic loss was of $7.5 billion (₹52,500 crore) but insurance available was only to the magnitude of 11%. If the government had insured it, then the premium for the sum assurance of ₹60,000 crore would have been only in the range of ₹13,000 to ₹15,000 crore,” Ghosh said in the latest edition of Ecowrap.

India recorded 756 instances of natural disasters (landslide, storm, earthquake, flood, drought, etc.) since 1900 with 402 events occurring during 1900-2000 and 354 during 2001-2021, indicating the preponderance of tail events off late. Since 2001, a total of 100 crore people have been impacted and nearly 83,000 people have lost lives due to these disasters. If the losses are adjusted with current prices, the losses comes out to a staggering ₹13 lakh crore i.e. 6% of India’s GDP. Also, there is huge gap in reporting of losses (loss data of only 193 events are available for India) and there are problems in existing estimation methodologies too.

Protection gap

Recently, the intensity and frequency of natural calamities, especially cyclones, have increased manifold in India. “In India, only around 8% of the total losses are covered, so, there is around 92% protection gap during the period 1991 to 2021. So, early intervention is needed to close the protection gap, which is in all lines (life & non-life) of insurance,” the report said.

Also read: SBI Ecowrap proposes 5 key agricultural reforms

Going by the 92% protection gap in India, an average Indian is only insured of roughly 8% of what may be required to protect a family from a financial shock following the death of the breadwinner. This means having savings and insurance of just ₹8 for every ₹100 needed for protection. Lack of awareness of what is an adequate life insurance cover for an individual increases the mortality protection gap.

“The insurance sector and governments need to actively engage and discuss how best to address the potential contingent liabilities from pandemic risk. This would also imply relooking at credit underwriting standards by incorporating outlier observations often ignored by modelling data. Meanwhile, we notice with elation that the level of insurance has indeed jumped post-pandemic indicating that the understanding of obtaining insurance cover is now increasing across the typical Indian households and we believe this percolates at the government level too,” Ghosh added.

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States with higher PMJDY a/c balances see significant fall in crime: SBI Ecowrap

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States with higher Pradhan Mantri Jan Dhan Yojana (PMJDY) account balances have seen a perceptible decline in crime, as per an assessment by the State Bank of India’s economic research department.

The department also observed that there is both statistically significant and economically meaningful drop in consumption of intoxicants such as alcohol and tobacco products in States where more PMJDY accounts are opened.

“This could be because of Jan Dhan-Aadhaar-Mobile (JAM) Trinity which has helped in better channelising of government subsidies and helped in curbing the unproductive expenditure such as alcohol and tobacco expenses in rural areas,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI, in the Bank’s economic research report “Ecowrap”.

Multiplier effect

The report emphasised that sound financial inclusion policies have a multiplier effect on economic growth, reducing poverty and income inequality, while also being conducive for financial stability.

“India has stolen a march in financial inclusion with the initiation of PMJDY accounts since 2014, enabled by a robust digital infrastructure and also careful recalibration of bank branches and thereby using the BC model judiciously for furthering financial inclusion,” the report said.

Such financial inclusion has also been enabled by use of digital payments as between 2015 and 2020, mobile and internet banking transactions per 1,000 adults have increased to 13,615 in 2019 from 183 in 2015.

The number of bank branches per one lakh adults rose to 14.7 in 2020 from 13.6 in 2015, which is higher than Germany, China and South Africa.

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Half the payroll in Q1 was new jobs: SBI’s Ecowrap

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The ratio of first jobs/new payroll to total payroll in the first quarter of FY22 indicates that one out of two jobs was a new addition, according to State Bank of India’s economic research report Ecowrap.

The report emphasised that this indicates that labour market disruptions were much lower during the second wave of the Covid-19 pandemic.

This addition in jobs comes in the backdrop of the GDP growth print coming in at 20.3 per cent in the April-June quarter against a contraction of 24.4 per cent in the year-ago period. The latest data released by the Employees’ Provident Fund Organisation (EPFO) indicates that net new EPF subscribers during April-June 2021 were 28.9 lakh, which was quite encouraging given that this period was marred by the devastating second wave, it added.

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said: “As per our calculation, the total payroll was 28.9 lakhs for Q1FY22, of which 14.5 lakhs were first job /new payroll.

“If the payrolls increase at this rate then the new payroll may cross the 50-lakh mark in FY22 as against 44 lakhs in FY21.”

Ghosh expects the labour market activity to remain robust this fiscal as companies will continue with hiring plans.

NPS & EPFO data

Ecowrap said the National Pension System (NPS) data indicates an addition of 1.85 lakh new subscribers in April-June 2021, of which State Government payrolls added 1.27 lakh, followed by non-government (37,587) and Central government (20,353).

The second job number (that is, exiting members re-joining and re-subscribing) was also encouraging at 11.8 lakh in April-June 2021 (in FY21, it was 41.2 lakh). The formalisation was 26 lakh in Q1FY22.

Cumulatively, total new payroll/first job generation of EPFO and NPS was almost 16.3 lakh in April-June 2021.

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Financial services turn investor darlings as m-cap jumps Rs 157 lakh crore, BFSI News, ET BFSI

Personal Finance

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Financial services are the clear winners in the stock market with Rs 157 lakh crore increase in their market cap during the past one year IT is another major sector whose market value has increased significantly, followed by oil and gas, consumer goods, automobiles, metals and pharma, according to an SBI Ecowrap report.

The report said that the share of savings in shares and debentures to total household financial savings at 3.4 per cent in FY20 is likely to increase in FY21 to 4.8-5.0 per cent or 0.7 per cent of GDP from 0.4 per cent of GDP in FY20.

Infrastructure play

The market capitalization of Sensex has increased by 1.8 times its value one year ago. However, sector-wise 1-year return in Indian stock markets indicates that IT and Materials have performed better and IT. This clearly indicates the movement in Indian stock markets is increasingly being clearly interlinked with a supposed infrastructure power play in the coming days, the report said.

The increasing retail participation, if it becomes the norm, could also enable a larger resource pool for financing India’s infrastructural requirements, the report said.

Retail investors

The number of individual investors in the market has increased by a whopping 142 lakh in FY21, with 122.5 lakh new accounts at CDSL and 19.7 lakh in NSDL. Furthermore, another 44.7 lakh retails investor accounts have been added during the two months of this fiscal. Also, the share of individual investors in total turnover on the stock exchanges has risen to 45% from 39% in March 2020.

Within retail, the maximum allocation has been to financials, followed by consumer staples, energy and IT.

Lower rates in other saving avenues amidst the low-interest rate regime has led to greater interest by individuals in the stock market. Another reason could be the significant increase in global liquidity. Additionally, the pandemic which has resulted in people spending more time in their homes might also be another reason for individuals’ tilt towards the stock market trading, the report said. However, it is yet to be seen if this increasing retail participation is transitory or the beginning of long term behavioural change.



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Poor people rely more on post-offices for their savings: SBI report

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Post-Office savings deposits are negatively correlated to per capita income while bank deposits are positively correlated with per capita income, according to State Bank of India’s (SBI) economic research report “Ecowrap”.

This indicate that poor people are more reliant on post-offices for their savings and when the income increase they shift to bank deposits first and not to financial products,as per the report put together by SBI’s Economic Research Department.

“That’s why the proportion of post-office deposits in Maharashtra & Delhi, where per capita income is very high is only 60 per cent.

“In states with low per capita income like West Bengal, Uttar Pradesh, Rajasthan and Bihar, the elderly population of 60 plus has a clear preference to invest in post office saving deposits,”Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said.

Referring to the trend of last 20 years data on gross small savings collections, the report noted that there is a structural break in 2008-09. In particular, the share of different states in gross small saving collections were declining till the global financial crisis.

However, post the financial crisis in 2008, there has been a significant jump in preference for post office savings. This jump is maximum in low income states like West Bengal and even in high income states like Maharashtra, the report added.

India Post Payments Bank app: The good, the bad and the ugly

Lack of financial literacy

Ghosh observed that the huge post-office collections in states like West Bengal and Uttar Pradesh and the preponderance of Kisan Vikas Patras indicate the lack of financial literacy for the products such as mutual funds.

“Particularly in West Bengal, sometimes, the left of political ideology that everything that market does is bad in fact results in asymmetric results with poor people investing more in chit funds, the live example of this is the ₹20,000-30,000 crore Saradha scam.

“Most of the times these types of scams are also the product of political dispensation,” Ghosh said.

He emphasised that the Government has taken the best decision of not changing the rates on small saving schemes as the country is currently going through an unprecedented pandemic crisis.

Lock into the Post-Office Senior Citizens Savings Scheme

Protecting seniors interest

To further improve the economic condition of senior citizens, the report recommended giving full tax rebate on the interest amount up to a threshold level on the Senior Citizens Savings Scheme (SCSS). This will have nominal impact on the exchequer.

Under SCSS, a senior citizen can deposit ₹15 lakh and the current interest rate is 7.4 per cent. However, the interest on SCSS is fully taxable (the interest amount for ₹1 lakh deposit for 5 years is around ₹51,000 which is taxable). The February 2020 outstanding under SCSS was ₹73,725 crore.

The report suggested that an age-wise interest rate structure should be ushered in, with rates linked to long-term bank deposit rates till a certain age group, and offering a higher than market rate over that age group.

“This could, in one go, serve the multiple purposes of ensuring a lower lending rate structure, adequate returns for senior citizens, lower interest expenditure and an alternative to floating rate deposits,” Ghosh said.

As Small Savings Scheme (SSS) rates are adjusted in every quarter, the report said the Government should ideally remove the 15-year lock-in period for Public Provident Fund (PPF) and give the investors the option to withdraw their money within a stipulated time with some sort of disincentive

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