Investors are looking at other avenues for parking their money instead of banks.
This year Diwali has been celebrated with fervour and the pent up emotions of the last two years in the midst of the COVID-19 pandemic has found a welcome release. This Diwali, consumers have loosened their purse strings and have spent lavishly. This is one of the reasons that bank deposits have seen slow growth.
In the last seven months, deposits in banks are 5.9 lakh crores while during the same period last year the figure was 7.24 lakh crore. The steps taken by RBI have also ensured better liquidity and there was no cash crunch. Credit or lending has also been in a manageable range. However, there is an issue that is troubling the financial experts.
Investors are looking at other avenues for parking their money instead of banks. It will be a cause of worry for the banks which will face a liquidity crunch once the RBI starts removing the sops, it had given to rejuvenate the economy after the COVID-19 lockdown. There are a number of factors in the financial market which is affecting banks.
The IPO has seen a big gain and is buoyed by the retail investors who have started to invest their savings here. As compared to last year IPO has seen a big rise of fifty thousand crores. The increased participation of the retail investors means that investors have parked their savings in the stock market in hope of early returns for their investments. This is happening in a situation till October where only 50% of the issues were giving good returns.
The Banks have also not taken steps to increase deposits. The fixed deposit will give only a 5% return in the long run. With inflation close to double figures, no one will like to see their savings depreciating. The challenge before the Banks is that it takes deposits and offers 5% interest but cannot disburse loans because of a slackening in demand. If the reverse repo is kept within a window of 3.34%, the results are bound to be negative.
Things have been happening in the Secondary Markets also. The daily proceedings at the NSE as compared to last year are 10% higher while at the BSE it is 34% higher. This indicates that investors are showing greater interest in the secondary markets. The market has picked up post-pandemic and is expected to cross 60,000 in the coming times. As the economy recovers and rejuvenates the stock market profitability will also increase.
Investors are also investing in Mutual Funds in a big way. Investment in mutual funds has seen a rise of five lakh crores and includes both debt and equity. This is also one of the reasons for the bullish sentiments prevailing in both NSE and BSE. Investors also include traditional investors who were earlier wary of investing in the stock market because of uncertainties. These investors now prefer the mutual funds with their relative safety instead of parking their money in Banks.
Toda, banks seem satisfied that the deposits are not increasing. However, when the economy goes full steam and there is a surge in demand for loans, banks will face a liquidity crunch. The boom in the stock market is expected to continue and banks will have to look for ways to lure back the investors who are flocking to the stock market due to better returns to their investments.