Banks’ term deposits (TDs) in the “one year and above but less than 3 years” tenor surged in FY23 due to attractive interest rates offered by them, leading to the share of deposits in this tenor rising to 64 per cent of total outstanding TDs as at March-end 2023 against 50.5 per cent as at March-end 2022.

Scheduled commercial banks (SCBs) term deposits grew 13.50 per cent year-on-year (y-o-y) to ₹97.60-lak crore as at March-end 2023, per RBI data in its latest Handbook of Statistics on Indian Economy.

In absolute terms, SCBs’ TDs rose by ₹11,61,262 crore in FY23 against ₹7,21,322 crore in FY22.

Banks depositors’ seem to have moved TDs in other maturity buckets to the “one year and above but less than 3 years”, lured by higher interest rates. For the same reason, they shifted some of their balances in savings account to this particular TD tenor.

For example, among the eight TD tenors, State Bank of India is currently offering the highest interest rate of 7 per cent on retail domestic TDs (below ₹2 crore) in the “2 years to less than 3 years” tenor, followed by 6.80 per cent on “1 Year to less than 2 years”. In all other deposit tenors, the interest rates are lower.

In response to the 250 (basis points/bps) hike in the policy repo rate since May 2022, the weighted average domestic TD rates (WADTDR) on fresh and outstanding deposits rose by 245 bps and 113 bps, respectively, during the May 2022- March 2023 period, according to RBI monthly bulletin. One basis point equals one-hundredth of a percentage point.

The proportion of TDs in the less than one year tenor declined to 20 per cent of total outstanding TDs as at March-end 2023 against 31 per cent as at March-end 2022.

The proportion of TDs in the five years and above tenor too dipped to 8.5 per cent of total outstanding TDs as at March-end 2023 against 11 per cent as at March-end 2022.

The proportion of TDs in the “3 years and above but less than 5 years” tenor was almost flat at 7.5 per cent of total outstanding TDs as at March-end 2023 and as at March-end 2022.

Driving factors

“Parking of funds is a function of interest rate and expectations. Banks are offering maximum rates in the 1-3 year maturity buckets. Most people tend to believe the higher interest rate will continue for at least 1-2 years due to repo rate.

“Third factor is that senior citizens normally park in the tenor where the interest rate is maximum as 95 per cent of them do not have any other income. They also don’t have the risk appetite for mutual funds,” said banking expert V Viswanathan.

Further, the shift of funds from demand deposits has happened mostly to the 1-3 year buckets as the funds are not locked up indefinitely.

A credit rating agency official cautioned that banks could face asset-liability mismatch risk due to concentration of term deposits in the 1-3 year maturity bucket as most retail loans (a segment which banks are going full steam ahead in growing their portfolio), barring gold, will be of duration longer than 3 years.

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