MUMBAI: A veteran banker on Thursday expressed concerns over the present trend of deposit flight out of banks, saying that if the trend, especially in the Casa segment, is not arrested there could be systemic risks down the line.
Seeking active participation of the government and the regulator to arrest the flight of money into non-banking assets like equities and mutual funds, IBA chairman MV Rao said if the present trend needs to be contained to avoid systemic risk.
Addressing the IBA-Ficci organised national banking summit here on Thursday, Rao, who also heads the public sector Central Bank of India, said, “Our analysis of mutual fund investors has found that as much as 99% of them are not analysing the technical or fundamentals of their investments but they are following some group.
After six-seven years when the cycle turns, definitely this will have a lot of systemic risk that may come out of. Because mutual funds invest in companies or stocks and they don’t make provisions unlike banks which must make provision of 20% even to AAA-rated investments”.
He further elaborated saying with the current generational shift, cultural changes also happen. The earlier culture of security is moving now to securitisation. People who are now keeping deposits are in the higher age group while the younger lots are moving to become investors.
Admitting that the return given by mutual funds are higher, he said restricted rate of interest for many bnaking assets/products vis-a-vis mutual funds don’t have restrictions. Going forward we cannot dictate the customer but give customer higher returns.
Today, on average money lying in savings account will fetch one a meagre 2.75% to 5% if the amount is higher than a threshold like `1 lakh or above and mid-term fixed deposits will fetch 6.5-7.3% but on withdrawal the interest money comes to one’s account after the tax deductions.
At 2.75%, which SBI or HDFC Bank or ICICI Bank offer is not even half the average annualised interest rate of 5% and above, which means your net earnings from the deposit has been a negative 2.25% or more.
