Time to invest?

Even though the number of demat accounts were set to exceed 100 million in August 2022, according to NSDL and CDSL data, many stock market investors in India are still financially illiterate. For this reason, many investors had to suffer huge losses in the Adani case, and the Supreme Court had to direct the government to safeguard their interests, stating that the regulatory mechanism of the stock market should be made so strong that small investors do not lose their money. There is a need to make investors financially literate, so that they can make appropriate decisions on their own and invest in the stock market.

The recent increase in the repo rate has increased the capital cost of the banks, to compensate for which they have increased the lending rate in proportion to the increased repo rate, so that their profits increase, and they can make up for the increased deposit cost with profits. At present, the demand for credit is not coming down even after the cost of loans has increased. Therefore, banks have to increase the deposit rate according to their capacity to take deposits from small investors, so that the spectrum of their deposit base is wide, and they can meet the credit requirements of the needy, businessmen and common people.

Bank deposit base has increased marginally in the recent past due to the drive undertaken by the banks to attract deposits. According to the Reserve Bank's Financial Stability Report (FSR), the rate of growth in deposits in the fortnight ended December 16, increased by 9.4 per cent over the same period last year, while it grew by 9.9 per cent over the previous fortnight. According to RBI data, overall deposits in the banking system stood at Rs 173.53 lakh crore in the fortnight ended December 16, as against Rs 175.24 lakh crore in the previous fortnight. However, keeping pace with credit demand remains a big challenge for the banks to increase deposits in proportion, as credit demand from the banking system grew by 17.4 per cent in the fortnight ended December 16, which is much more than deposit growth.

Investing in banks’ fixed deposit schemes has been considered the most secure and attractive investment option in India since the beginning, but due to the significant reduction in fixed deposit interest rates over the past few years, small investors have turned to the stock market. However, due to speculators or financial ignorance, they are facing losses.

Now, to raise capital at a cheaper rate, banks are increasing interest rates on term deposits. State Bank of India is paying interest at the rate of 7.50 per cent to senior citizens on fixed deposits of five to 10 years, while non-senior citizens are being given interest at the rate of 6.50 per cent for the same period. SBI has launched a new fixed deposit scheme, Amrit Kalash, for 400 days, on which senior citizens are being given interest at the rate of 7.60 per cent. The benefit of this scheme can be availed till March 31, 2023.

Punjab National Bank is paying interest at the rate of seven per cent to senior citizens on fixed deposits of five years, while for term deposits of more than five years and up to 10 years, interest is being given to senior citizens at the rate of 7.3 per cent. At the same time, non-senior citizens are being given interest at the rate of 6.50 per cent on fixed deposits for a period of three to 10 years.

The Central Bank of India is paying interest at the rate of 6.92 per cent to senior citizens on fixed deposits with a tenure of three to 10 years. Canara Bank is paying interest at the rate of seven per cent to senior citizens on term deposits of more than three years and up to five years, while it is paying 7.45 per cent interest to senior citizens on term deposits of more than Rs 15 lakh and less than Rs 2 crore.

Bank of India is paying interest at the rate of 6.75 per cent to common citizens on fixed deposits of five to 10 years, while it is paying interest at the rate of 7.25 per cent to senior citizens for a period of two to five years. Compared to banks, some NBFCs are paying nine per cent interest on fixed deposits.

Credit offtake has remained robust despite the cost of loans being higher as businesses are struggling to recover from the slowdown. Hence, banks are trying to woo small investors by offering attractive interest rates to increase the deposit base.

In the current scenario, the deposit rate may be increased further by the banks, because for the time being, inflation remains at a high level, there is a sharp increase in credit and there is a possibility of increasing the repo rate by the Reserve Bank of India in the upcoming monetary reviews. Therefore, investors should not miss the present opportunity of safe and lucrative investment, but they also need to be careful in the matter, as some non-banking financial institutions are offering higher interest on deposits, and a few years ago, a few co-operative banks that were offering higher rate of interest on deposit had gone bankrupt. In such a situation, investors need to avoid greed.

Views expressed are personal