Key facts
- Indian households are reportedly shifting savings from riskier assets back to bank deposits.
- This trend is attributed to weak stock markets and geopolitical concerns.
- Bank credit growth in India is outpacing deposit growth.
- Yes Bank is experiencing increased inquiries about shifting from equities to fixed deposits.
- Yes Bank plans to leverage its branch network to attract deposits and expand retail lending.
Indian households are reportedly beginning to shift their savings back into bank deposits, a trend attributed to volatility in the stock market and broader geopolitical concerns. This potential return to traditional fixed-income instruments could offer a much-needed boost to lenders like Yes Bank, which have been grappling with intense competition for credit demand.
Vinay Tonse, CEO of Yes Bank, stated that both anecdotally at his bank and across the industry, there is evidence of savings returning to deposits. He noted a significant increase in inquiries about moving funds from equities to fixed deposits. This shift is occurring as bank credit in India has expanded at its fastest pace since June 2024, growing 16.2% in the year through May 15, while deposits saw a more modest increase of 12.2% over the same period.
Indian equities experienced a remarkable surge following pandemic-era lows, making the NSE Nifty 50 Index a top-performing global market. However, lofty valuations and a global AI-driven investment trend have led to foreign investors withdrawing capital. Additionally, rising oil prices, exacerbated by the conflict in Iran, have added further pressure. This confluence of factors contributed to the largest drop in Indian equity mutual fund inflows in three years during May.
SMBC, part of Japan’s second-largest banking group, became the primary shareholder of Yes Bank last year, acquiring a 24.9% stake. This investment marked a significant foreign capital inflow into India's expanding banking sector. Yes Bank and SMBC have established cross-referral agreements for retail offerings and deposits, aiming to leverage SMBC's relationships with large corporations.
Tonse, who has over 35 years of banking experience and previously led State Bank of India’s retail operations, indicated that Yes Bank, with its extensive network of over 1,300 branches, is actively seeking to grow its deposit base. The bank has started to reduce its deposit rates more aggressively than competitors to avoid relying on costly funding sources. Larger financial institutions such as HDFC Bank, ICICI Bank, and Axis Bank are also prioritizing the expansion of their retail deposit portfolios amidst sustained competition for household savings.
Returns from monthly equity investment plans linked to the Nifty 200 Index have turned negative over a two-year period, and also trail bond yields over a five-year horizon, according to Bloomberg Intelligence. Bond yields are a key factor in pricing bank deposits and loans. Yes Bank, currently the sixth-largest private sector lender by assets, also intends to broaden its retail lending activities to include home and auto loans, areas it previously avoided due to lower yields. In the March quarter, the bank's loans grew 11.1% year-on-year, while deposits increased by 12.1%.