Competition For Mobilization of Fixed Deposits To Rally Up in India

The term fixed deposit is one of the most common household name in the country. Off lately, the interest rates on fixed deposits are trimmed by most of the leading banks in India after the country's central bank - Reserve Bank of India recently announced its decision to cut repo rate by 25 basis points.

The move by RBI has though helped the loans in India to get cheaper but this has definitely impacted badly on the interest rates of the fixed deposits which is one of the popular savings tools amongst most of the common people in India.

Banks are currently facing the problem of deposit mobilization from its customers as post offices and other avenues are also providing attractive returns by offering higher interest rates on investment and has garnered much-needed attention of the investors through various sources in India.

Recently, five banks in India came out of the Reserve Bank's Prompt Corrective Action (PCA) framework and the framework had earlier restricted the public sector banks to lend and this led to a lower focus from these banks on deposit mobilization.

As per the data from the RBI, the credit growth for the banking sector stood at 12.9 per cent year-on-year basis whereas the growth of the deposits shrunk to settle at 9.3 per cent for December 2018. The incremental loan to deposit ratio in case of a public sector bank was seen at 119.5 per cent and it was recorded at 100.5 per cent in case of private banks between the third quarter of FY 2018 - third quarter of FY 2019.

The savings schemes offered by the post offices spread across India is offering best competition to the fixed deposit schemes of private and public sector banks.

Analysts' note that in future if the credit growth dominates over the deposit growth then it is likely to lead to higher cost of funds along with rising volatility in the asset-liability structure of banks.