As bank deposit rates fall, savers are diversifying their investments

According to RBI data, the percentage of bank deposits in overall savings/investments made by the household sector in financial assets declined from 54 per cent to 41 per cent between financial years 2013-14 and 2015-16. 

While median deposit rates inched up from 7.42 per cent in March 2013 to 7.78 per cent in September 2013, they started trending lower gradually thereafter. 

Deposit rate cuts gathered momentum from June 2014 onwards, declining 1.11 percentage points from 7.74 per cent to 6.63 per cent in June 2016. 

In FY2015-16, investments in financial assets — including bank deposits, non-banking deposits, life insurance funds, provident and pension funds, currency, shares and debentures — in the economy grew by ₹14,89,853 crore. 

Financial assets in FY15 and FY14 were up by ₹12,72,240 crore and ₹11,99,278 crore, respectively.

In its annual report for 2015-16, the RBI said the increase in gross financial assets was driven primarily by a turnaround in small savings and increases in investment in equities and mutual funds, tax-free bonds by public sector units and currency holdings even as the growth in bank deposits held by households moderated. 

“Time deposits were muted by the moderation in deposit rates…Large issuances of long-term tax-free bonds by various public sector units contributed to the deceleration in deposits, besides the higher returns on small savings which are not subject to tax deduction at source,” the RBI said