FM Pushes Banks to Launch Deposit Mobilisation Drive-47% of term deposits are held by senior citizens

 FM Pushes Banks to Launch Deposit

Mobilisation Drive

New Delhi/Mumbai: Finance Minister Nirmala Sitharaman on Monday nudged state-run

banks to step up deposit mobilisation and conduct special drives so that it can keep pace

with the growth in loans.

The minister’s comments at a meeting with public sector bank chiefs came after a study by

SBI Research suggested that bank deposits, traditionally favoured for their safety and

liquidity, are losing their appeal among younger investors. While deposits remain a secure

investment option, their post-tax returns are falling short compared to riskier assets like

mutual funds and equities.

While seeking a review of the tax structure for bank deposits, SBI economists suggested that

nearly 47% of term deposits are now held by senior citizens, the report showed, indicating

that the younger population is shifting away from conventional banking avenues. In

contrast, the median age of investors in mutual funds has dropped from 42 to 30 years, with

the involvement of those under 30.

According to SBI Research, bank deposits are losing their appeal among younger investors.

This is because while deposits remain a secure investment option, their post-tax returns are

falling short compared to riskier assets like MFs and equities. In fact, nearly 47% of term

deposits are now held by senior citizens, the SBI report showed, indicating that the younger

population is shifting away from conventional banking avenues.

RBI and the FM have suggested that banks should work towards building a better

relationship with customers by reaching out to them, especially in rural and semi-urban

areas.

Most banks offer up to half a percentage point higher interest to senior citizens. At the same

time, senior citizen depositors can claim exemption from tax deduction at source. When

lending growth remains higher than deposits, RBI and the FM have underlined the need to

immediately address the issue so it does not result in a 'systemic risk' in the future.

At Monday’s meeting, Sitharaman suggested that banks should work towards building a

better relationship with customers by reaching out to them, especially in rural and semi-

urban areas. The minister also pushed banks to strengthen their tech platforms to guard

them against any cyber threat so that their systems are not compromised.

'FM advised that issues of cyber security should be seen from a systemic perspective and

emphasised that a collaborative approach between banks, government, regulators and

security agencies is needed to put in place necessary mitigants against cyber-risks,' FM also

urged that every aspect of the IT system should be reviewed periodically and thoroughly to

plug any cyber security gap to ensure that the security of the bank systems is not breached

or compromised,' an official statement said.

Sources said deposit mobilisation was a key theme. With stock markets performing better

and mutual funds becoming a major investment tool, investors—especially in the younger

age group—have opted out of fixed deposits. The new tax treatment also makes them

unfavourable.

The SBI report recommended delinking the tax treatment from the highest income bracket

and the timing of deposits at the time of an accrual basis. SBI’s analysis of term deposits

using data from 1970-71 to 2023-24. The findings reveal that if pre-2016 rates were

increased by Rs 1,000, bank deposits would rise by Rs 652, suggesting a 7% increase due to

the reduction of taxation.

According to the report, mutual fund investor profiles have grown nearly five-fold from a

little under 2 crores in March 2014 to over 10 crores in June 2024. However, the number of

unique investors has not increased marginally, suggesting that many investors diversify

their portfolios across multiple mutual funds.