Where the money lies in India?

Personal saving accounts and fixed deposits are very common nowadays. Though it is not new, there are various factors which can determine the contribution of the people (and the state) in different accounts, based on industry, economic activities etc. There are several parameters to the savings and we can see the performance of Indians state-wise on these different parameters. Some states have outstanding performance while others seem to be struggling. We can also see the difference not only in terms of types of accounts but also in terms of contributors, and performance of different sector banks.

Capital is one of the basic requirements in production. This capital formation is possible through personalised saving accounts and fixed deposits. Banks using fixed deposits and saving account deposits for lending and earning through its interest rate is a very simplified yet fundamental banking model. We can also look at savings accounts as the potential purchasing power of the people. There is a lot of data about savings available through RBI. Recently Co-founder and Chief Investment Officer of Wint, Anshul Gupta posted a series of tweets where he shared data about savings in India.

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India has got several types of institutions which offer saving account services. As per India Brand Equity Foundation’s (IBEF) June 2022 report, the Indian banking system consists of 12 public sector banks, 22 private sector banks, 44 foreign banks, 43 regional rural banks, 1,484 urban cooperative banks and 96,000 rural cooperative banks in addition to cooperative credit institutions. As of September 2021, the total number of ATMs in India reached 213,145, of which 47.5% are in rural and semi-urban areas.

In India, the number of personal deposits varies from state to state. Maharashtra, Karnataka and Uttar Pradesh are the leading states in terms of personal deposits. The total individual deposits are ₹93 lakh cr.

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As we all know, there are three types of deposits. The first is a saving account and another is a current account and the third one is term deposits or Fixed deposits. In India, the total deposits are ₹172 lakh crores and out of these 55% are term deposits. Saving accounts consists of ₹59.7 lakh crores of deposits and current accounts have ₹17.6 lakh crores in deposits.

Interestingly, most of the account holders are individuals and households and then come from financial private businesses.

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As we can see in the above figure, the contribution by individuals is immense. Along with individuals, non-financial corporations, the Government, the rest of the world and financial contributions contribute to the total deposits in the banking sector.

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There are spatial variations in terms of the percentage of India’s total contribution. The financial capital of India i.e. Mumbai contributes around 13% of India’s total deposits, which is then followed by Delhi, Bengaluru, Chennai and Kolkata. Pune and Thane district also part of the top 10 districts contributing to the total deposits.

This data was about overall deposits. In the previous figure, we have seen that the maximum contribution in deposits is placed by individuals and not by corporates. The distribution shows that around 40% of deposits come from the metropolitan area. On the other hand, somewhere near 20% contribution comes from the rural area.

The same trend can also be seen in the case of gender-based graphs. In the metropolitan area, females have average deposits of ₹100,000 while, this number reduces to an average of around ₹20,000 towards the rural area.

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Deposits by individuals dominate in the banking sector, at the same time public sector banks dominate in this sector. As Anshul Gupta says, physical presence, branches, trust and Jan Dhan accounts could be the possible reasons for this. In public sector banks, contribution by individual deposits is more than total deposits. Contribution in the small finance banks is the lowest, around 0.82% in the case of individual deposits.

In the banking segment, usually there are three types of deposits saving accounts, term deposits and current accounts. Saving accounts and term deposits are generally operated by individuals, from where people can withdraw as per the requirements, subject to certain conditions. Current accounts usually are convenient for businesses. The current account allows more freedom for withdrawals, subject to certain conditions.

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As individuals choose public sector banks over other banks term deposits and savings accounts are more in these banks. In the case of rural banks, the contribution of savings accounts is the highest as compared to current accounts and term deposits. The reason could be, the customers of these banks belong to the low-income strata of society, which is why they are highly dependent only on savings accounts. On the other hand, foreign banks have more interest in business therefore, corporates and other businesses use the foreign bank to create current accounts. Except for these differences, the mix of deposits is more or less similar in every type of bank.

It is interesting to see the distribution of deposits as per the location. In the metropolitan region, we find that the maximum contribution is from term deposits, because of the high income of the people. Employees in the metropolitan region use term deposits as an instrument for investment and as seen in the case of banks, saving accounts contribute the maximum in the rural area.

Even though people choose term deposits as an investment, most people open FDs ranging between 1 lakh to 15 lakh rupees. Only a few FDs go above 1 crore deposits. By looking at the amount deposited in FD we can estimate that, these are mostly operated by middle-income class families.

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For the common man interest rate on FD is important. It varies from bank to bank, most of the banks provide 5-6 p.c.p.a. The current inflation rate in India is around 6.8% which means, the majority of FD holders are losing their money over time. We can compare this data with the period for which FDs are created. Usually,>80% of FDs are created for 1-3 years, which means they are used more as a means for short to medium-term investment than a long-term investment.

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Recently RBI has increased the repo rates. There are chances that the loan interest rates would also increase in the coming time. Loans are generated through the deposits generated, but the data shows that even though non-food credit has increased, the growth in deposits is falling behind.

The whole data describes the distribution of money within society. It also reflects how people invest in different areas, in different banks etc. The banking business is based on lending. In the next article, we will see the disbursement of credits throughout the country.