Demonetisation of high value currency notes in November 2016 seems to be affecting banking business, adversely now. Bank growth rate fell to its lowest since 1963 in the financial year ending March 2018. The bank deposit grew by 6.7 per cent in 2017-18, according to the data available on the Reserve Bank of India (RBI) website. This is the lowest growth rate in bank deposits since fiscal 1963.
The fall in bank deposit growth, according to an Economic Times report, might be attributed to the withering away of demonetisation bonanza coupled with the lure of other savings instruments like mutual funds and insurance. The twin factors seem to have eroded competitiveness of the banks.
Post-November 2016 demonetisation of 86 per cent of the currency in circulation, banks had seen a huge surge in deposits. But the banking sector is now witnessing a reversal trend as there is a steady away movement of money from the banks.
Much of the money that came into the banking system after demonetisation has moved out of the system. Recent acute cash shortage reported from various parts of the country was also blamed on the ongoing trend of withdrawal of excessive money from the banks.
Banks had reported a total deposit of Rs 15.28 lakh crore after demonetisation — almost the entire value of demonetised currency. This had pushed the aggregate deposits in the banks by 15.8 per cent for the fiscal ending March 2017 to Rs 108 lakh crore.
The fiscal ending March 2018 reported the total deposit of Rs 114 lakh crore. This translated into an increase of 6.7 per cent over the last fiscal. Now the question is, where is the withdrawn money going?
Answer could be found in the growth of other financial instruments. For example, the mutual funds assets have reported a growth of about 22 per cent between March 2017 and March 2018 — the period during which bank growth rate touched the lowest in five decades.
However, there is a catch. The mutual fund assets had grown by 42 per cent – from Rs 12.33 lakh crore to to Rs 17.55 lakh crore – the previous fiscal, that is, between March 2016 and March 2017.
Similarly, the first premiums (signaling new policies) for insurance investments have increased from Rs 1.75 lakh crore in March 2017 to Rs 1.93 lakh crore in March 2018. The corresponding figure for fiscal ending March 2016 was Rs 1.38 lakh crore.
Meanwhile, record low bank deposit growth may bring some good news for the customers. The banks are likely to increase the rate of interest on deposits. The process has already begun. HDFC Bank has already announced a hike in interest rate by up to 100 basis point on fixed deposits for certain tenures.
Source : https://www.indiatoday.in/india/story/note-ban-effect-bank-deposit-growth-lowest-in-55-years-1226357-2018-05-04