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It is a foregone conclusion that the covid-19 pandemic forced Indians to save more by curtailing the opportunities to spend in FY21. This has stretched to the current financial year because of the second wave of the pandemic. However, a look at the ownership pattern of bank deposits reveals some interesting nuggets.

In FY21, deposits from private sector companies grew by 26.5%, the biggest jump in nine years. It was also the fastest growing segment of deposits in that year, according to analysts at Kotak Institutional Equities.

This led to the share of private sector companies in total outstanding bank deposits increasing from 11.3% in FY20 to 12.7% in FY21, their report showed. The growth here has been faster than that of deposits from households, which grew by 12.9% during the year. Also, household deposit growth has slowed in the past six years compared with the early 2000s, though it still forms a lion’s share of bank deposits. In FY21, this share was 64.1%.

Big flows
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Big flows

Two conclusions can be drawn from the above trend. One, the pandemic did not hit private sector companies hard, at least not those with lower leverage. The profit margin, which was stable and even increased for some listed companies, has added credibility to this conclusion. Large companies have hardly suffered because of the pandemic.

“The slower growth in retail deposits and solid growth in private corporate sector gives two opposing signals of the current economic condition. Private sector has accelerated deposit growth for the third consecutive year, giving further evidence that the impact of the pandemic was not negative," the Kotak report noted. Also, amid uncertainty, private firms may have felt it judicious to keep liquidity levels high through deposit holdings.

Another conclusion that can be drawn is that the pandemic has been painful for Indian households, even debilitating for some. Data from the Reserve Bank of India (RBI) shows that household savings had increased due to the pandemic as spending was curtailed. However, households have seen erosion in incomes and a surge in medical expenses because of the health crisis.

This may explain why deposit flow from households seems to have tapered off after the initial burst in the first half of FY21. Indeed, the banking system’s year-on-year deposit growth had slowed to 8.62% by August from about 10% at the beginning of FY22. Indians are likely dipping into their savings for expenses such as medical treatment.

Term deposits grew by just 8% in FY21, while savings and current account deposits rose by 17% and 20%, respectively. This shows that the build-up in savings was temporary.

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