Bankers have called for the development of innovative products to reclaim deposit customers who have moved to the equity market. They cautioned that while deposits ensure safe and periodic returns, customers risk losing money if markets correct from current highs.

“I feel it (deposit mobilisation challenge) is more of a transient and not a structural issue at this point in time. At the same time, we as a bank typically need to figure out how to address the change of preference happening for savers,” said Debadatta Chand, MD and CEO, Bank of Baroda (BoB) at FIBAC on Thursday.

Chand said customers do not opt to open a savings account with a bank if the product is not bundled with other services or benefits. More customers prefer digital banking than branch banking. At BoB, Chand said that just like systematic investment plans (SIP) in mutual funds, the bank has launched a “systematic deposit plan” that offers modest returns.

MV Rao, MD & CEO of Central Bank of India and chairman of the Indian Banks’ Association said that banks cannot offer more returns to saving account customers as they are tightly regulated on the deployment of funds.

“The returns given by mutual funds is higher because the deployment of our resources is regulated so tightly...and at every level, the end use has to be ascertained...,” he said.

“You have restricted rate of interest on many of the asset products that banks offer. Against this (in case of mutual funds), I do not know the end use, and whether the deployment is being done to priority sector, MSME or government schemes,” he said, adding that banks make 20 per cent provision even for lending to AAA rated corporates, whereas mutual funds do not have to.

Accordingly, the involvement and “active participation” of the government and regulator is required so to ensure that bank deposits—which aid economic expansion – increase. Rao cautioned that the majority of mutual fund investors are not conducting fundamental or technical research before investing and that when the cycle turns for the bad, there could be a systemic risk that may hurt the financials sector at large.

“If you analyse, the so-called investors in the mutual funds, if you say they are investors, I don’t think 99 per cent are analysing the technical or fundamentals. Just they are following — I do not want to call it as a herd — but as a group. So going forward after 6-7 years when the cycle turns, definitely, this will have a lot of systemic risks that may come out,” he said.