It is a foregone conclusion that the COVID-19 pandemic forced Indians to save more by reducing spending opportunities in FY21. This has been extended till the current financial year due to the second wave of the pandemic. However, a look at the ownership pattern of bank deposits reveals some interesting nuggets.
In FY21, deposits of private sector companies grew by 26.5%, the biggest jump in nine years. According to analysts at Kotak Institutional Equities, it was also the fastest growing segment of deposits that year.
This increased the share of private sector companies in total outstanding bank deposits from 11.3% in FY15 to 12.7% in FY15, their report showed. The growth here has been faster than deposits from households, which grew by 12.9 per cent during the year. In addition, domestic deposit growth has slowed over the past six years compared to the early 2000s, although it still accounts for a large proportion of bank deposits. This share stood at 64.1% in FY21.
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Two conclusions can be drawn from the above trend. One, the pandemic did not hit private sector companies hard, at least not those with less leverage. Profit margins, which were stable and even increased for some of the listed companies, have added credence to the conclusion. Large companies have hardly suffered due to the pandemic.
“Slow growth in retail deposits and solid growth in the private corporate sector give two contrasting signs of the current economic situation. The private sector accelerated deposit growth for the third year in a row, providing further evidence that the impact of the pandemic was not negative. Holding.
Another conclusion that can be drawn is that the pandemic has been painful for Indian families, even debilitating for some. Data from the Reserve Bank of India (RBI) shows that there was an increase in household savings due to the pandemic as spending was cut. However, the health crisis has seen a decrease in the income of families and an increase in medical expenses.
This may explain why deposit flows from households have slowed down after the initial explosion in the first half of FY21. Indeed, the banking system’s year-on-year deposit growth slowed to 8.62% by August from around 10% at the beginning of FY22. Indians are dipping into their savings for expenses like medical treatment.
Fixed deposits grew only 8% in FY21, while savings and current account deposits grew by 17% and 20%, respectively. This suggests that the increase in savings was temporary.
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