Rising interest rates prompting more people to go in for term deposits

Rising interest rates seem to be driving more people to go in for term savings plans as the share of such instruments in total bank deposits increased to 60.3 per cent in December 2023 from 57.2 per cent in March 2023, according to the Reserve Bank data.

On an incremental basis, term deposits accounted for nearly 97.6 per cent of the total deposits during April-December 2023 and the shares of current account and savings account (CASA) deposits went down, said RBI's Quarterly BSR-2: Deposits with Scheduled Commercial Banks - December 2023.

"Rising return on term deposits has been driving the compositional shift in bank deposits: the share of term deposits in total deposits increased to 60.3 per cent in December 2023 from 57.2 per cent in March 2023," it said.

RBI further said that deposits moved to higher interest rate buckets as the share of term deposits bearing over 7 per cent interest rate rose to 61.4 per cent of the total term deposits in December 2023 from 54.7 per cent a quarter ago and 33.7 per cent in March 2023.

It is almost a year that the Reserve Bank has kept the short-term lending rate or repo rate at 6.5 per cent. The benchmark interest rate was last raised in February 2023 to 6.5 per cent from 6.25 per cent due to inflation driven mainly by global developments.

In an off-cycle meeting in May 2022, the Monetary Policy Committee of RBI raised the policy rate by 40 basis points and it was followed by rate hikes of varying sizes, in each of the five subsequent meetings till February 2023. The repo rate was raised by 250 basis points cumulatively between May 2022 and February 2023.

RBI's quarterly BSR data also showed that nearly two thirds of the incremental term deposits during October-December 2023 were of the size 'Rs 1 lakh to less than Rs 1 crore'. The corresponding share in the previous quarter was 46.5 per cent.

Female customers made significant contribution in deposit accretion. Their shares in incremental CASA, term, and total deposits during October-December 2023 were 63.4 per cent, 36.1 per cent, and 40.1 per cent, respectively.

Their share in total deposits increased to 20.6 per cent in December 2023 from 20.2 per cent in September 2023. Senior citizens held 20.1 per cent of the total deposits in December 2023.

Another set of quarterly data showed that credit to industry increased by 9.5 per cent (y-o-y) in December 2023, which was comparable to the growth a year ago. Personal loans continued to expand and its share in total credit stood at 30.9 per cent in December 2023 (28.6 per cent in previous year).

RBI said the share of women borrowers in total credit is relatively low, but it is growing at a robust pace and has outpaced the growth in loans to male borrowers over the last seven quarters.