When rate of interest goes down , public deposits naturally goes to mutual funds or chit funds or invested in gold where return is higher compared to bank deposits.It is obvious and but natural that when growth of deposit slows down , lending capacity of these banks also get reduced.. Ultimately when GDP is low, it is again the common men who suffers dues to lesser developmental activities undertaken by Government .
I am therefore of the strong opinion that interest rate should never go below the rate of inflation and rate of interest or appreciation available in other avenues of investment. RBI must take care of national priorities as they used to do before 1991 and set interest rate structure for all banks .
A decade ago , bankers used to make excuse for lesser deposit growth saying that interest paid by state government or central government on post office deposit schemes is much higher and gives tax incentives .Government of India gradually reduced interest rate on post office deposits. Still banks failed to exhibit desirable growth in deposits. Now these clever banks are asking Government to restrain mutual funds giving higher returns or allow banks to offer higher rates.
Clever bankers appear to be brainless and simply indulged in flattery to Ministry people for their personal interest, they seldom care for what is good and what is bad for the country's economy and what is good and bad for common men.They perhaps do not understand how to mobilise the growth in deposit without jeopardizing the national economy and without bringing risk to survival of banks itself. This is why sometimes they cry for reduction of interest and sometimes they seek permission for ruse in deposit rates. When Ministry seek reason for lesser credit growth they ask for cut in Repo rate or CRR rate.Is is not clear that banks are not consistent in their demand and approach to Ministry?
I remember , how a few years ago say upto the year 2010 and 2011 these clever bankers used to offer extraordinary higher interest rate to acquire bulk deposits from corporate, public sector undertakings and from various departments of government. Further to add fuel to fire , these brainless bankers used to lend money to corporate at Sub PLR rate sacrificing their profit prospects. However to please ministry of finance they used to manipulate provisions and hide bad assets so that profit may appear inflated and they get quick promotions.
In greed of quicker promotions and to become wealthy , bankers usually sacrifice safety and security of bank assets and unfortunately government officials also fail to take cognizance of the same for reason best known to them.
PSU banks fret as MF debt assets outpace fixed deposits--Economic Times
MUMBAI: While banks are finding it tough to attract customers for deposits, the mutual fund industry has collected aboutRs 1.90 lakh crore between April 2012 and February 2013 from corporates and HNIs (high net worth individuals), taking the total asset size of the debt segment to nearly Rs 5 lakh crore, according to Morningstar, a USbased global fund tracker.
Worried by this development, some bankers of state-run banks have met finance ministryand Reserve Bank of India officials, expressing their concerns over the growing debt asset size of mutual funds, said a person close to the industry who didn't want to be identified.
"Mutual funds are a competing source which has been one of the reasons for slower deposit growth last year," said BK Batra, executive director, IDBI Bank"But it is something here to stay and one has to deal with it," he added.
Banks are facing stiff challenge to maintain their CASA (current and savings account) ratio, as mutual funds are delivering higher returns on debt products. Bank deposits grew at a sluggish 13.1% year-onyear basis till March against 14.4% a year-ago.
"I think mutual funds don't pose a danger to banks' deposit mobilisation so far because their total asset size is not huge," said Sanjay Arya, executive director, United Bank of India "We are also expanding in rural and unbanked areas, where their reach is limited. So, as rural incomes grow, banks will benefit from that. The last reason is there's certainty of returns with bank deposits, which is not the case with mutual funds," he added.
Corporates and HNIs are availing of mutual fund debt schemes in an elaborate way to park their short-term surplus money on hopes of a rally in debt market as interest rates are seen headed southwards.
"Most corporates and HNIs are investing in shorter-duration debt schemes on expectations of a rally in debt market as interest rates are expected to ease going, forward," said S Naren, chief investment officer, ICICI Prudential. "The Reserve Bank of India has cut interest rates by 50 basis points in the last three months; we expect more rate cuts in future."
The liquid, or short-term funds, are very popular with corporates and HNIs, as average returns are 50-basis points higher than bank fixed deposits, besides there's greater flexibility in entering and exiting mutual fund schemes than FDs .
"Corporates and HNIs are finding the current investment environment more suitable for FMPs (fixed maturity plans) than FDs due to income tax and indexation benefits," said Dhruva Chatterji, senior re-search analyst at Morningstar.
"Last year, we have seen significant flows to debt mutual fund products, and over the past couple of months, FMPs offered from mutual funds have seen good subscription." "Corporates and HNIs are investing in income and money market schemes since there's a tax arbitrarge over fixed deposits. The banks deduct TDS when money is withdrawn, whereas in mutual funds, investors are relieved of tax hassle," said Jimmy Patel, CEO, Quantum Asset Management
Worried by this development, some bankers of state-run banks have met finance ministryand Reserve Bank of India officials, expressing their concerns over the growing debt asset size of mutual funds, said a person close to the industry who didn't want to be identified.
"Mutual funds are a competing source which has been one of the reasons for slower deposit growth last year," said BK Batra, executive director, IDBI Bank"But it is something here to stay and one has to deal with it," he added.
Banks are facing stiff challenge to maintain their CASA (current and savings account) ratio, as mutual funds are delivering higher returns on debt products. Bank deposits grew at a sluggish 13.1% year-onyear basis till March against 14.4% a year-ago.
"I think mutual funds don't pose a danger to banks' deposit mobilisation so far because their total asset size is not huge," said Sanjay Arya, executive director, United Bank of India "We are also expanding in rural and unbanked areas, where their reach is limited. So, as rural incomes grow, banks will benefit from that. The last reason is there's certainty of returns with bank deposits, which is not the case with mutual funds," he added.
Corporates and HNIs are availing of mutual fund debt schemes in an elaborate way to park their short-term surplus money on hopes of a rally in debt market as interest rates are seen headed southwards.
"Most corporates and HNIs are investing in shorter-duration debt schemes on expectations of a rally in debt market as interest rates are expected to ease going, forward," said S Naren, chief investment officer, ICICI Prudential. "The Reserve Bank of India has cut interest rates by 50 basis points in the last three months; we expect more rate cuts in future."
The liquid, or short-term funds, are very popular with corporates and HNIs, as average returns are 50-basis points higher than bank fixed deposits, besides there's greater flexibility in entering and exiting mutual fund schemes than FDs .
"Corporates and HNIs are finding the current investment environment more suitable for FMPs (fixed maturity plans) than FDs due to income tax and indexation benefits," said Dhruva Chatterji, senior re-search analyst at Morningstar.
"Last year, we have seen significant flows to debt mutual fund products, and over the past couple of months, FMPs offered from mutual funds have seen good subscription." "Corporates and HNIs are investing in income and money market schemes since there's a tax arbitrarge over fixed deposits. The banks deduct TDS when money is withdrawn, whereas in mutual funds, investors are relieved of tax hassle," said Jimmy Patel, CEO, Quantum Asset Management
This is a very good post it explains how people have different views on mutual funds but according to me it is beneficial .
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