As the economic picture turns grimmer and with the government in the grip of policy paralysis, fuelling volatility in the markets, the average Indian has begun a flight to safety, favouring bank deposits over stock markets to park her funds.
Deposits with banks and non-banking financial companies (NBFCs) grew by 13% to Rs 512,030 crore in 2011-12 from Rs. 451,680 crore in 2010-11, the Reserve Bank of India’s Annual Report 2011-12 released on Thursday showed.
Against this, shares and debentures saw an outflow of Rs 6,510 crore in 2011-12, compared to an inflow of Rs. 1,730 crore in 2010-11."When the valuation of shares goes down in times of uncertainty, people prefer options such as bank deposits as they always seek security for their investments," said Ranjeet Mudholkar, vice-chairman and chief executive officer, Financial Planning Standards Board India.
Bank deposits, which are offering higher interest rates, also took the shine off small savings instruments such as National Savings Certificates. Small saving instruments saw an outflow of Rs. 22,030 crore in 2011-12 against Ras. 900 crore inflow in 2010-11.
“Last year banks offered up to 10% interests on fixed deposits, whereas small savings instruments were offering 8-8.6% interests,” Vishal Dhawan, founder, Plan Ahead Wealth Advisors, pointed out.