Ratio of small savings deposits to bank deposits rising: Report

“Even in the case of incremental deposits, while the deposits by SCBs have increased 55.4 lakh crore in last 5 years, small savings deposits have only increased 4.6 lakh crore,” showed the report written by economist Aditi Gupta.

However, what is to be expected is that the similar ratio of small savings fixed deposits to banking fixed deposits or savings account deposits has been slowly but steadily increasing over the years.

The data shows that the ratio of small savings deposits to bank deposits has increased from 4.4% in FY17 to 5.8% in FY22. “While the stock is still very low, a gradual increase is significant,” the report said, adding that the higher interest rates offered by small savings schemes could be the main reason for this rising ratio.

After almost two years of stable rates regime, interest rates on some small savings schemes have been hiked by 10-30 basis points in the last few months. On the other hand, the bank savings deposit rate has remained at a low of 2.7% even though the fixed deposit rates have been hiked to some extent. “Even on fixed deposit rates of maturity of 1 year, the rate of interest is lower than similar small savings instruments,” the report said.

Gupta said in the report that higher interest rates are one of the reasons for the increase in interest in small savings deposits as compared to traditional bank deposits.

“…Small Savings Schemes offer a higher rate of interest than the interest rate offered on the respective bank deposits. This is true for both savings deposit rates as well as fixed deposits of maturity of 1 year. For SCBs and small savings scheme, both offered the same rate of 4% in FY17. However, banks progressively reduced the savings deposit rate to 2.7% in FY22, for post office deposits, it was 4%. remained unchanged at %.Similarly for term deposits with maturity of 1 year, both SCBs and Small Savings Schemes offered an interest rate of 6.8% in FY17. For SCBs it was reduced to 5.2% from FY2011 Whereas for small savings schemes it actually went up to 6.9%.In FY22, the deposit rate for SCBs increased to 5.3%, but it is still lower than the 5.5% interest rate offered by small savings schemes “

“Banks continue to be the preferred choice for consumers as compared to small savings schemes. However, small savings have an advantage over margins offering higher rates as these are only periodically adjusted and linked to market rates. Often in a down cycle, the government chooses not to reduce their rates which makes them attractive to households,” Gupta said.