Retail deposits decline as the stock market rises
By Vaibhav Aggarwal
May 26, 2009
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With the share market soaring and deposit rates lowering, bank executives expect a slow down in new deposits.

Retails investors may be encouraged to park their surplus funds in non-deposit products, though the investments in long-term deposit products may remain. Mr T. M. Bhasin, Executive Director, United Bank of India, said, "This shift from bank deposits to alternative sources of investment such as the stock market might not be sudden as people who have already burnt their fingers might wait and watch for a while."

Earlier this year, due to falling stock prices and uncertain political environment, bank had witnessed rise in deposits. The liquidity surplus and excessive ideal funds triggered fall in deposit rates. O. P. Bhatt, Chairman, State Bank of India said "The bank had deposits flow of about Rs 1,000 crore daily in November-December 2008 and received Rs 20,000 crore worth of deposits in April 2009." During 2008-09, SBI's deposits grew 38 percent by Rs 2,04,669 on a year-on-year basis.

Bhatt added, "There has been an unprecedented flow of deposits, but we feel it should go down now as the stock markets seem to be on the rebound. Earlier there was money flowing from multiple sources such as stock markets and real estate into bank deposits but this momentum might not continue." He also pointed that the bank has been lowering the interest rates in a calibrated fashion by 200 points.

"The lower volumes and lower yields on deposits would help improve bank margins", said Mr S. K. Goel, Chairman and Managing Director, UCO Bank.


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