Ratio of small savings deposits to bank deposits inching up: report

“In terms of incremental deposits as well, while deposits by SCB’s have increased by ₹55.4 lakh crores over the last 5 years, small saving deposits have only increased by ₹4.6 lakh crore,” the report, authored by economist Aditi Gupta, showed.

However, the silver lining is that the ratio of small savings term deposits to banking term deposits or the same for savings account deposits have been rising gradually but continuously over the last few years.

Data shows that the ratio of small savings deposits to bank deposits has inched up from 4.4% in FY17 to 5.8% in FY22. “While the share is still very low, the gradual rise is significant,” the report said, adding that the higher interest rate offered by small savings schemes could be the main reason for this increasing ratio.

After an almost 2-year stagnant rates regime, interest rates on some of the small savings schemes have been hiked by 10-30 basis points in the past few months. On the other hand, bank savings deposit rate continues to remain at a low of 2.7% even as term deposit rates have been hiked to some extent. “Even the term deposit rate of 1 year maturity fetches a lower rate of interest than the corresponding small saving instruments,” the report said.

One of the reasons for the heightened interest in small savings deposits over traditional bank deposits is the higher interest rates, Gupta noted in the report.

“…small savings schemes offer a higher rate of interest than that offered on the corresponding bank deposits. This is true both for savings deposit rates as well as term deposits of 1 year maturity. For savings deposits, both SCBs and small savings scheme offered the same rate of 4% in FY17. However, while banks successively reduced the savings deposit rate to 2.7% in FY22, for post office deposits, it has remained unchanged at 4%. Similarly for term deposits of 1 year maturity, both SCBs and small saving schemes offered an interest rate of 6.8% in FY17. This was reduced sharply by FY21 to 5.2% for SCBs, while for small savings schemes it actually increased to 6.9%. In FY22, the deposit rate for SCBs increased to 5.3%, but it still remained lower than the corresponding interest rate offered by small savings scheme at 5.5%.”

“Banks continue to remain the preferred choice for consumers when compared with small saving schemes. However, small savings have the benefit at the margin of offering higher rates as these are adjusted only periodically and linked to market rates. Often in the downward cycle, the government chooses not to lower their rates which make them attractive for the households,” Gupta said.