The Curious Case of Bank Deposits: Rs3.3 Lakh Crore Bulge and Rs2.7 Lakh Crore Slump in Alternate Fortnights
Moneylife Digital Team 03 December 2021
As per the provisional data released by Reserve Bank of India (RBI) for the fortnight ended 19 November 2021, the aggregate deposits of all scheduled commercial banks (ASCBs) have slumped by Rs2.7 lakh crore. The slump in deposits follows an abrupt increase by Rs3.3 lakh crore during the previous fortnight ended 5 November 2021. Interestingly, such growth in deposits was around 36% of the incremental deposit growth at that point in time. 
 
According to a research note from the State Bank of India (SBI), this increase in deposits and the subsequent slump is quite a contrarian trend. "While it may be difficult to exactly decipher the increase and subsequent decline, it does pose questions on liquidity management or financial stability or a shift in behavioural trend in customer payment habits through digitisation and hence lower currency leakage and concomitant deposit bulge or both," says Dr Soumya Kanti Ghosh, group chief economic adviser of SBI.
 
 
He says, "We believe that it is likely that there was a large influx of deposits into the banking system for the fortnight ended 5 November 2021, in anticipation of a build-up in the rally in stock markets post-primary issuances of new-age companies and others. However, when such rally did not materialise, the bulge in banking deposits slumped, and almost 80% of the deposit bulge was withdrawn." 
 
Interestingly, the report shows the amount of money parked in the fixed reverse repo window jumped to Rs2.4 lakh crore on 17th November from Rs1.6 lakh crore and has remained at such level since 1 December 2021. 
 
However, it must be noted that the significant jump in digital transactions has also resulted in lower usage of cash in the current fiscal and, ideally, could also have resulted in a surge in deposits for the Diwali week, SBI points out. 
 
The report also highlights an unusual increase in fortnightly deposits of Rs3.3 lakh crore, especially during Diwali week, as currency leakage and concomitant deposit decline always occur. This is also the fifth most significant increase in any fortnight in the past 24 years. 
 
According to SBI, such huge incremental addition has happened only a few times, with higher deposits accretion than the current year's fortnight. It occurred during the fortnight ended 25 November 2016 at Rs4.16 lakh crore, on 30 September 2016 at Rs3.55 lakh crore, 29 March 2019 at Rs3.46 lakh crore and the fortnight ending 1 April 2016 at Rs3.41 lakh crore.
 
"However, increase in November 2016 was because of demonetisation and the March and April fortnightly increases could be attributed to seasonal year-end bulge. In this respect, the current deposit bulge requires a detailed explanation," SBI says. 
 
Talking about the fortnightly deposit slump in the subsequent fortnight, the report shows that equity markets have witnessed a large influx of new investors in the past few months, even as bank deposits have decelerated. According to NSE (National Stock Exchange) data, monthly investor registrations rose to record-high levels in September 2021 at 1.56 million after a marginal decline in August.
 
Almost 5 million additional new investors registered in April to September 2021 compared with the same period last year. 
 
 
Interestingly, the amount of money parked in the fixed reverse repo window jumped to Rs2.4 lakh crore on 17th November from Rs0.45 lakh crore on 19th October and has remained at such level till 1 December 2021. 
 
However, SBI says, it must be noted that the significant jump in digital transactions has also resulted in lower usage of cash in the current fiscal and ideally could also have resulted in a surge in deposits for the Diwali week.
 
 
Meanwhile, if we look at the quarterly ASCB data, though the deposits growth remains the same in the second quarter (Q2) at 2.6% compared to Q1 at 2.5%, sequentially at all-India level, apart from metro regions, the deposits growth has decelerated in Q2 compared to Q1, particularly in rural areas indicating that the current economic recovery is primarily urban led and rural economy is still recouping. 
 
 
Meanwhile, ASCB's credit has increased by Rs1.18 lakh crore or 7.1% year-on-year (y-o-y) during the fortnight ended 5 November 2021 which may be due to festive demands.
 
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