People offload equity investments as stockmarkets dip, says RBI stats

KOLKATA: When stockmarkets go through a rough patch, people typically offload their equity investments and put the money in banks instead. The latest RBI stats on financial savings of the household sector clearly comfims the trend. In fact, some people even chose themselves liquid amid the steady rise in food prices and the economic downturn.

The household sector had parked 58.5% of their collective savings with banks and non banking finance companies (NBFC) in 2008-09. This was a solid 6.3% percentage points rise from 2007-08 s share of deposits to total saving, according to RBI s latest data. As on March 31, 2009, banks collectively had an outstanding deposits of Rs 4.1 lakh crore, reflecting a 13.6% year-on-year rise. During 2008-09, people wound up their equity investment significantly to Rs 19,349 crore from Rs 89,134 crore in 2007-08.

On percentage terms, stock market exposure of retail players was merely 2.6% of the total savings pie in 2008-09. It was 12.4% in the preceding fiscal. The banking regulator has come out with the statistics in its recently published annual report. It was apparent that a significant portion of the withdraw exposure found its way to banks. The retail equity investment shrunk by nearly Rs 70,000 crore while banks have seen a rise in their collective retail deposits kitty of about Rs 49,000 crore. Country s top bankers would vouch for the so-called flight of savings from equity market to banks. They have always maintained that their deposit mobilisation during 2008-09 had been high.

And, people mostly put their funds with banks long term deposits, which typically carry higher interest rates than short term deposits or savings deposits. So much so, that banks cost of funds were on the higher side during the period under review. Even NBFCs managed to grow their public deposits by almost Rs 10,000 crore to Rs 13,453 crore. Insurance companies have grown their retail portfolio to Rs 1.5 lakh crore (Rs 1.29 lakh crore).

Total financial savings have expanded too on a gross basis to Rs 7.47 lakh crore (Rs 7.16 crore). Cash in hand increased to Rs 93,000 crore in 2008-09 from Rs 81,300 crore. This was 12.5% of the financial assets. grew from 11.4% as it was a year back.