Total bank deposit grew by 9.9 per cent in the fortnight ended March 18, 2016, marking the weakest growth in 53 years. The fall in bank deposits is surprising because it comes at a time when real interest rate (interest rate minus inflation) continues to be high.
Typically, higher real interest rate gives investors more incentive to park their money in banks to earn inflation-beating return. According to research by State Bank of India (SBI), deposit growth may be falling because of higher spending by people. Higher real rate in the economy is because of falling inflation and this may be forcing people to spend more, its research says.
Another possible reason for decline in deposits could be increasing outward flow of money from the country, the report said. The Reserve Bank had last year doubled the amount to $2,50,000 that Indian residents can spend overseas per year.
"The outward remittance under Liberalised Remittance Scheme has seen a huge jump as soon as the limits were revised. From $106 million in May 2015, the remittances reached $449 million in Feb 2016, a jump of 324 per cent," SBI in a report said.
Another possible reason "could be increased money circulation in the system. That leakage is also leading to a fall in bank deposits," said Soumya Kanti Ghosh, chief economic adviser of SBI. (Watch)
RBI chief Raghuram Rajan recently said that cash in people's hands is more by up to Rs 60,000 crore at present.
Mr Ghosh said that the "fall in deposit growth is a matter of concern and needs to be addressed head-on. Otherwise when the credit growth picks up, banks may be in a fix to address the asset liability mismatch.
Typically, higher real interest rate gives investors more incentive to park their money in banks to earn inflation-beating return. According to research by State Bank of India (SBI), deposit growth may be falling because of higher spending by people. Higher real rate in the economy is because of falling inflation and this may be forcing people to spend more, its research says.
Another possible reason for decline in deposits could be increasing outward flow of money from the country, the report said. The Reserve Bank had last year doubled the amount to $2,50,000 that Indian residents can spend overseas per year.
"The outward remittance under Liberalised Remittance Scheme has seen a huge jump as soon as the limits were revised. From $106 million in May 2015, the remittances reached $449 million in Feb 2016, a jump of 324 per cent," SBI in a report said.
Another possible reason "could be increased money circulation in the system. That leakage is also leading to a fall in bank deposits," said Soumya Kanti Ghosh, chief economic adviser of SBI. (Watch)
RBI chief Raghuram Rajan recently said that cash in people's hands is more by up to Rs 60,000 crore at present.
Mr Ghosh said that the "fall in deposit growth is a matter of concern and needs to be addressed head-on. Otherwise when the credit growth picks up, banks may be in a fix to address the asset liability mismatch.
1 comment:
Maybe several years later, credit card crisis will be everywhere..
internet banking
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