JOIN USCOVID-19 may lead people to save more
In what could be a ray of hope for India’s depleting savings, the latest RBI data shows the world’s biggest public health crisis and the related uncertainty has induced people to move to long-term deposits.
The percentage increase in amount of term deposits in about three months from March to May, the period of COVID-related lockdown was nearly twice bigger at 4.28% compared to 2.47% in the same period last year (2019).
This was despite the government reducing interest rates on most of term deposits by one percentage point or more.
The data released over the weekend showed outstanding term deposits went up to Rs 123.91 lakh crore during the week ended May 8 from Rs 118.81 lakh crore in the week to March 15, or 4.28 percentage points. The term deposits in the same period last year had increased by only 2.47 percentage points.
The increase in term deposits came despite the government reducing the interest rates on many of them by one percentage points or more in April.
Term deposits come with a pre-set date of maturity and can range from a few months to years. A term of a year or less is considered a short-term time deposit. Anything over that is a long-term deposit. The most common term deposits are fixed deposits.
Simultaneously, the data showed, the deposits with savings and current accounts with banks witnessed a meagre 0.10% rise in between mid-March and the first week of May compared to 1.54% in the corresponding period last year. These deposits, also known as demand deposits, grew at a faster pace than term deposits in between March and May 2019.
“The trend just got reversed in the same period of 2020 due to uncertainty in the minds of people, who do not wish to move beyond their essential purchases in the next six months to one year. Even businesses are withdrawing from demand deposit schemes and putting money into long-term deposits,” a couple of bank executives told DH.
Data also showed non-life insurance premiums witnessed a fall of over 10% in April 2020 compared to April 2019. The monthly premium drop in segment, however, could be due to the lockdown.