Most like it short

An analysis of bank deposits maturity over the last eight years shows that investors have shifted towards short-term deposits in recent times.

The proportion of deposits of maturity less than one year in total deposits went up from 37 per cent in 2004 to 48.5 per cent in March 2011. This suggests depositors were expecting better rates on deposits the next year. During fiscal 2009-10 and for a good part of 2011, interest rates remained low. This was the time when less than one year deposits accounted for the larger share.

During the early part of 2011, short-term rates were hiked steeply, ahead of longer-term deposits. As the short-term deposit share went up, the proportion of 1-3 year deposits came down from 38.6 per cent of total deposits in March 2004 to 30.3 per cent in March 2011.

Shying away from long-term deposits

The long-term deposit share (more than three years for maturity) has declined from 23.4 per cent in 2004 to 21 per cent during the eight year period. While the proportion was more or less the same until March 2009 (when the first rate cycle was close to its peak), the fall in rates in 2010 led to depositors shying away from these deposits. The last time this bucket got sizeable inflows was during 2008 and 2009, when banks, to tide over the liquidity crisis, offered very attractive rates for customers.  

During the period between March 2007 and 2009, long-term deposits grew at annualised 30 per cent when overall deposits grew by 21 per cent annually. Public sector banks depositors have shifted from long-term deposits to shorter-maturity deposits. The proportion has come down from 28 per cent in 2004 to 23 per cent in 2011. During the same time, private banks' long-term deposit proportion improved from 8.5 per cent to 15 per cent.

Savings bank deposits

Savings bank deposits, as a proportion of total deposits, have also been very sensitive to the interest rates; the proportion tends to improve during the low interest rate regime. For instance, when the term deposits rates in 2005 and 2006 were low, savings bank deposits accounted for close to 26 per cent of the total deposits. With rising interest rates, the proportion of savings bank deposits fell to 22.8 per cent in 2009 fiscal, only to rise to 24 per cent as of March 2011.

Higher inflation too could have prompted depositors to manage their investments more actively. During the last three years ended March 2011, consumer price inflation ruled higher than the weighted average cost of deposits for banks. Simply put, the payout by banks on their term deposits was lower than inflation. This could have prompted investors to put money in shorter term deposits.

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