Term deposits increased to 59% in FY24 amid rise in FD interest rates, says SBI report; check key details

The latest research report by the State Bank of India says increasing fixed deposit interest rates in recent years have pushed investors to opt for term deposits. Of the total deposits made in FY24, term deposits account for 78% on an incremental basis, highlighting the effect of higher interest rates on deposit patterns.

The report said the share of term deposits increased to 59% in FY24 from 56.5% in FY23. Public Sector Banks are the driving force of low-ticket deposits across the banking spectrum.

“The average ticket size of SB/Term deposits of Public Sector Banks comes to ₹72,577… as against ₹1.60 lakhs of Private Sector Banks and ₹10.5 lakh for Foreign Banks,” the report said.

FD deposits rise, CASA deposits fall

However, the high return on term deposits has had a negative impact on the Current Account Savings Account (CASA) deposits, which have declined from the 2023 levels. “On an incremental basis, term deposits accounted for nearly 78% of the total deposits in FY24, though the shares of CASA deposits have declined from 2023 levels. This is obvious as in an increasing interest rate scenario, CASA moves to time deposits,” the report noted.

According to the report, CASA deposits declined to 41.0% in FY24 from 43.5% in FY23 due to declining Savings Bank deposits. These deposits now move across the banking systems, as savings bank deposits are mainly used for UPI and other transactions and not as a means of savings or deposits. The report flagged the stability of savings bank deposits as an issue.

Senior citizens own majority of FD accounts

Even though bank deposits are safer than risky assets like Mutual Funds and more on the safety and liquidity aspects, they fare low on the returns parameter, SBI said in the report. This has made younger Indians shy away from fixed deposits, with more senior citizens being interested in the investment option. “Remarkably 47% of term deposits are now held by Senior Citizens, implying the younger cohort is increasingly shying away from traditional avenues like bank deposits,” said the report. On the other hand, the median age of investors in the capital markets is just 32 years, with around 40% of the investors being under 30 years of age.

SBI bats for tax parity with other investment options

The government should bring in some tweaks on the tax on deposit interests, SBI opined in its report. “Clearly, in line with MF/equity markets, we are of the considered opinion that Government should tweak the ‘tax on interest on deposits and delink tax treatment at the highest income bucket….and tax treatment should be at redemption and not at accrual basis for bank depositors,” it said.

SBI used the annual data of per-capita income (PCI) on deposits from 1970-71 to 2023-24 to analyse the impact of taxes on deposits. The results showed that there was a 7% net impact due to tax on deposits of the banks operating in India. “This makes the case for sincerely thinking about treating deposits uniformly as a different asset class…Our simulation results show that a uniform tax treatment like a short and long term will have minimal impact on Government revenues,” the report mentioned.