Nirmala Sitharaman told banks- do something new and increase FD, will you get more interest now?

Finance Minister Nirmala Sitharaman has expressed concern over the decrease in deposit growth rate and increase in credit growth rate. She has instructed the banks to run special campaigns to increase deposits. After this, it is being speculated that now banks can increase the interest rate on deposits to attract customers.

In fact, currently senior citizens hold 47 percent of the total FDs of banks. The youth have now become disillusioned with FDs and are turning to investment options that have the potential to give higher returns like stock market or mutual funds. As a result, the average age of equity investors has come down to 32 years while 40 percent of investors are less than 30 years old.

But merely increasing interest rates will not be enough to attract customers towards bank FDs. SBI economists have suggested that the structure of tax levied on deposits should be changed so that the large amount of deposits coming to banks can be used for credit growth.

Economists have also raised questions on the continuation of credit growth without deposit growth. In such a situation, banks have been forced to increase interest rates for deposits. This matter is becoming a cause of more concern because the gap between deposit and credit growth has been widening continuously for the past one year.

According to the SBI report, the Indian banking system is in a state of slow deposit growth for the 26th consecutive month. Historically, cases of deposit growth being less than credit growth have lasted for 2-4 years. In such a situation, economists believe that based on past experiences, the current phase of this slowdown may end between June 2025 and October 2025. But the major reason for this is said to be the possibility of slow credit growth. The new liquidity guidelines made for banks to maintain buffer may also lead to a slowdown in credit growth in the short term.

However, if seen in the long term, in the last 3 years, deposit growth has been more than credit growth. Since 2021-22, there has been a total increase of Rs 61 lakh crore in deposits, which is more than the credit growth of Rs 59 lakh crore. But on an annual basis, in 2022-23 and then in 2023-24, credit growth has left deposit growth far behind, which is the real reason for concern.