Depositors are increasingly changing tack on bank deposits there is a slow shift in the maturity pattern of deposits they are opting for. Parking money for 2-5 years on assured returns is a thing of the past. Instead, depositors are opting for shorter tenor bank deposits.
An analysis of the latest RBI figures on maturity pattern of deposits shows that in FY05, about 63% of the deposits mobilised by commercial banks was for a period of up to two years while only 37% of the deposits was for longer periods. It was 28% and 72%, respectively, in FY'90. Between 1989-90 and 2004-05, the share of shorter tenor deposits have more than doubled while the share of longer tenor deposits have almost halved.
Bankers say the trend is stronger in urban areas as is reflected in the recent efforts in deposit mobilisation by some public sector banks. Of around Rs 1,000 crore each raised by Union Bank and Bank of India this fiscal, 80-90% was from smaller towns and rural areas, according to bank officials.
Besides, the savvy urban depositor is now well aware of the uncertainties associated with market-related interest rates, which started looking southward since late '90s. Also, depositors have seen many commercial banks fail in the recent past, which have further made them unsure of locking in savings for a long period.
Changing market realities on various asset price cycles and other unforeseen contingencies have also added to consumer concerns . This is adding to the desire to remain liquid.
Besides, corporates who have emerged cash-rich over the years due to better financial management park funds in short-term deposits, more as a stop-gap arrangement till better investment opportunities emerge. A back-of-the-envelope calculation indicates that households comprise only a small portion of term deposits mobilised by commercial banks. Bulk of the deposits is held by corporates and other entities.
From banks perspective, this might not be a healthy development for their asset liability management, as bulk of their loans are for longer tenors. Even the shorter tenor personal loans are normally for a minimum period of five years.