The first fortnight of the new fiscal saw the banking system flush with funds which witnessed the bank credit, investments as well as deposits each increase by one percentage point.
The eve of credit policy announcement saw depositors withdrawing from demand deposits only to park their funds in higher yielding time deposits.
The first fortnight of the current fiscal, ending on April 11, saw demand deposits reduce by Rs 1,277 crore to Rs 87,813.
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The depositors moving away from demand to time or fixed deposits can be seen from the fact that the latter surged by Rs 6,673 crore in the same fortnight to touch Rs 4,221,178 crore.
The budget as well as finance ministry directives gave enough signals to the market that the interest rates will have to go down in the short term.
The investors discounted this factor and preferred to invest in higher yielding time deposits rather in negligible interest which is paid in demand deposits, said the chairman of a Mumbai-based nationalised bank.
The last fortnight of the previous financial year on March 28, saw aggregate deposits surge by Rs 14,342 crore to Rs 5,03596 crore.
Bankers had attributed the astronomical rise in deposit figure as a financial year-end phenomena, where banks to window dress their balance sheets chase depositors.
Interestingly, the aggregate deposits has continued its northward march even in the new financial year.
This means that inflow into the banking system continues to rise as there are not much avenues for investment. The aggregate-deposits figure went up by Rs 5,396 crore or 1.1 per cent to Rs 5,08,991 crore on April 11.
The uncertainty which prevailed in the capital market and only a few primary debt issues like the ICICI after the fall of the Deve Gowda government at the centre on March 30 did not leave much choice for the investors to park funds for the short end, a debt market analyst with a NSE broker said. Hence, bank fixed deposits piped other forms of fixed income securities.
Expansion of funds in the banking system can also be seen from the fact that cash and balances with the Reserve Bank of India increased by Rs 5,912 crore to Rs 58,945 crore on April 11. Moreover, currency with the public continues to shrink, a pointer that money is moving into the banking system