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Idle funds at banks

Photo: APPremium
Photo: AP

Heightened savings, despite the negative real rates of interest people get on the deposits, could also be a sign of precaution getting the better of consumption among households

Deposits held by banks reached a new milestone, hitting 151.13 trillion as on 26 March, the last fortnight of the previous fiscal year, according to data released by the Reserve Bank of India. This was up 11.3% year-on-year.

One might be inclined to think this is good. After all, the greater the deposits with banks, the bigger their pool of funds available to lend in our economy. That would hold true in better times, but not necessarily now. While bank deposits grew at a double-digit rate, non-food credit rose just 5.5% during the period. Banks’ vaults are being stuffed, but borrowers are still scarce. Heightened savings, despite the negative real rates of interest people get on the deposits, could also be a sign of precaution getting the better of consumption among households. The covid crisis seems to have generated a distinct preference for liquidity, and safe investment options seem too few to soak up funds. Perhaps some of it will feed a binge of post-pandemic spending, or find its way into stock markets, whose indices already seem out of whack with economic reality. Both these could cause volatility ahead. Maybe our central bank should try harder to find retail buyers for government bonds.

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