Bank deposits finding way to equity markets, says SBI report

With interest rate on fixed deposits fallen significantly over the past many months, bank deposits may be finding their way to the equity markets, a research report from State Bank of India said.

“We believe, in the Indian context, there could have been the flight of bank deposits to the equity markets as evident from increasing participation of retail investors from April 2019, albeit with some volatility,” the report authored by Soumya Kanti Ghosh, Group chief economic adviser, SBI, observed.

Interest rates have fallen sharply since the beginning of the year, with the Reserve Bank of India (RBI) lowering the repo rate by135 bps between February and October to boost the slowing economy. In response, banks have reduced both the term deposit rates and the lending rates. “As we are transcending to a lower interest rate regime, we are clearly witnessing relatively lower pace of increase in time deposits compared to participation of individuals (retail and HNI) in the NSE cash market,” the report said.

The other trend the report highlights is that Indian banks are pushing the quarterly results to earlier dates, which could be seen as improvement in the asset quality cycle.

The report said when the asset quality review was initiated by the RBI in 2015, the dates of bank results went well beyond their usual timing. It used to be till April 30 for Q4 and October 31 for Q2.

“However, recently, macro-stress tests for credit risk of the RBI indicate that under the baseline scenario, SCBs’ gross non-performing asset (GNPA) ratio may decline from 9.3% in March 2019 to 9.0% in March 2020. Simultaneously, bank results are now being pushed to be declared more within the first month of the preceding quarter that went by,” it said.

The report estimates, with the available results of public sector banks for Q2 FY20, the GNPA ratio is around 11.7%, lower than the overall PSB March 2019 ratio of 12.6%. “Thus, pushing forward of the result date could clearly act as an indicator of banking sector asset quality,” the report said.

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Printable version | Oct 23, 2021 4:31:30 AM |

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