In the July 17 issue of the Financial Express, economists Ram Tamara and Madhuri Saripalle of Nathan India describe subtle changes in the savings behavior of India’s households. Analyzing data on savings and deposits in India from 2006 to 2009, they note that household deposits are a big portion of current account and savings account deposits, or CASA, and that such accounts make up a third of all deposits. CASA deposits, however, seem to be on the decline, especially in nationalized and foreign banks, as opposed to private banks.
If households value CASA deposits for their liquidity and turn to them for lack of other investment venues, a decline in deposits suggests a deepening in financial market offerings through venues other than banks. Private banks seem to have retained more CASA deposits because they work hard to attract new, young customers in urban areas by offering more and better services. The interest rate on savings deposits at all banks, however, is fixed at a rate lower than the rate of inflation. Policymakers should consider freeing the interest rate on deposits so banks can attract new customers and to motivate depositors to hold larger balances.
Tamara and Saripalle conclude that keeping household savings in banks will ensure not only that banks retain one of their biggest sources of ready and relatively cheap funds but also that savings are not diverted into speculative behavior.
A national business daily, Financial Express is part of the Indian Express group, one of the oldest newspapers in India.