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Interest Rates Impact on Short Term Deposit Schemes


With increasing volatility in interest rates and growing numbers of alternative investment avenues, more and more bank depositors are going in for 1 -2 Year maturity schemes of all commercial banks rather than the longer term deposits schemes, which have been loosing their sheen from 1998-99 onwards, the ASSOCHAM Eco Pulse (AEP) Study has pointed out.

Although 1-2 year maturity deposits schemes have always remained among the favourite choices for depositors, these have become the most popular avenues for depositors to park their money. Their percentage in the total bank deposits has touched 23.41% in 2004-05 from 22.52% in 1998-99.

The uncertainty and volatility in the interest rate has had the maximum impact on the short-term duration deposit schemes ranging between 91 days to six months. Their percentage share in the total bank deposits have almost doubled from 5.82% in 1998-1999 to 10.51% in 2004- 2005, AEP study shows.

Even the three months deposits have shown a marked increase as compared to long-term schemes five years and above. The percentage share of saving schemes up to 90 days in total bank deposits has increased from 8.55% in 1998-1999 to 13.91% in 2004-05.

“The bank depositors have responded to change in the interest rate scenario, even as awareness about shuffling their savings portfolio has increased”, points out the study.

The AEP tracked seven popular schemes of 27 commercial banks, comprising deposits upto 90 days, 91 –days- six months, six months -one year, one year -two year, two years –three years, three year -five years and five years and above.

It has been observed that 1 to 2 years schemes had garnered deposits upto Rs. 99119.7 crore in 1998-99, which rose to Rs. 249090.8 crore by March end 2005 claiming an increase of 23.41 percent.

Schemes ranging six months to one year also showed a marginal increase in their deposits from 12.44 per cent in 1998-99 to 14.95 percent in 2004-05. Like –wise, the growth in the share of deposits of 91 days to 6 months schemes also went up from 5.82 per cent on 1998-99 to 10.51 percent in 2004-05.

Similarly, less than 91 days deposits which accounted for 8.85 per cent in 1998-99 accounted for 13.91 per cent in 2004-05.

However, in longer gestation schemes like scheme of 5 years & above, deposits were 11.79 per cent of all commercial banks total deposits in March 19989-99. These declined to 8.43 per cent by March 2004-05. Similarly, 3 to 5 years deposits schemes which accounted for 22.75 per cent in 1998-99, their share in total deposits fell to 18.10 per cent in March 2004-05.

Likewise, the growth in the share of deposits of 2 years to 3 years schemes also went down from 15.82 per cent on 1998-99 to 10.69 percent in 2004-05.

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