For a while now, the interest rates offered by fixed deposits were declining but now it has reached a level where short-term savings looks more attractive.
While the banks have excess liquidity in their system, they are unable to find a suitable creditor or say the banks are not ready to lend at the time of crisis and with fear of rising NPAs. This has forced banks to cut rates for both short-term and long-term deposits.
Post demonetisation, there was a surge in Mutual Fund investment and other investment options. But the economic impact due to COVID-19 has made such investments also lose their sheen. The only investment that makes sense the ever before is gold.
The State Bank of India (SBI) offers 2.9 per cent for deposits of between seven days and 45 days which is slightly better than the 2.7 per cent offered on savings bank accounts. However, in the case of Kotak Mahindra Bank and HDFC Bank, the short-term rates are lower than the savings rates.
According to an ET report, deposit growth saw a drop of around 8 per cent in the fiscal year ended March 2020 compared with 10 per cent growth in FY19. This year, so far, deposits have grown by 1.9 per cent in the first two months though they fell marginally in the fortnight ended May 22.
According to data from the Central Statistics Office, the fall in returns may negatively impact the country’s savings generation, which is already at a 15-year low. India’s gross savings fell to 30.1 per cent of GDP in FY19 from 34.6 per cent in FY12, and 36 per cent in FY08. Household savings fell to 18 per cent in FY19 from 23 per cent in 2012.
