As a time when persistent inflation is eating into people’s bank savings but banks are resisting a raise in interest rates on savings deposits, savers are turning themselves into investors, pushing banks to rethink their strategies, ToI reported on July 22. According to the report (by Mayur Shetty), this trend has gained more traction post-elections, with more and more funds flowing from savings accounts to mutual funds, SIPs, and term deposits.
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“The saver-to-investor movement is quite accentuated, and it has only galloped after the elections. That is why you are seeing pressure on savings accounts where funds are going into mutual funds, SIPs or even term deposits,” the report quoted Shanti Ekambaram, deputy MD, Kotak Bank, as saying.
Since March 2020, savings account deposits have declined from 32.8% to 31.2%, while term deposits have increased from 57.8% to 59%. Despite inflation-adjusted savings accounts yielding negative returns, banks have shown no interest in raising rates.
Ashok Vaswani, MD & CEO of Kotak Bank, described the bank’s approach: “We see ourselves as the holding company for other businesses, generating value from money that moves from the bank to capital markets or insurance.”
Kotak Bank is revising its strategy to grow its deposit base by simplifying the process of opening savings accounts and offering bundled products for key segments. They have reintroduced a programme that transfers funds from savings and current accounts to term deposits and are employing a micro-market strategy to expand their deposit base.
HDFC Bank aims to significantly increase its branch network and deepen its relationship with existing customers to boost its retail deposits. The bank focuses on small, individual balances retained in customer accounts.
“We want the branches to drive granular deposit growth and not look for non-retail or large ticket-sized deposits,” said Srinivasan Vaidyanathan, CFO, HDFC Bank. He also noted that fixed deposits have seen substantial growth, increasing by Rs 44,300 crore or 24% from the previous year.
Yes Bank has expanded its physical presence by adding 140 branches since January last year and plans to add another 30-50 this year. According to Rajan Pental, head of retail at Yes Bank, there has been a slight increase in the cost of new deposits, but this has not significantly impacted overall strategy.
“The customer needs money for transactions, investment, for spending which has to come through the banking channel, which we are in a position to augment and make them do transactions through RBL Bank with our differentiated service and interest rate,” said R Subramaniakumar, MD & CEO, RBL Bank.
In sum, banks are having to respond to the changing landscape by employing various strategies to maintain and grow their deposit bases, even as customers increasingly shift their funds towards investment avenues.
