UBS: Savings Transition From Banks To Alternative Assets Signals Changing Investor Sentiment

Tanvee Gupta Jain, Chief India Economist at UBS Securities India, highlighted the evolving landscape of household savings and its implications for bank deposit growth. The UBS report, "India Economic Perspectives: Five Key Questions for the Indian Economy," reveals a significant shift in Indian households' savings behaviour post-pandemic. Traditionally, Indian savers favoured fixed deposits, but now, with easier access to retail loans and a younger, more digitally savvy population, there is a growing trend towards diversifying savings into asset classes like property, equities, and provident funds.Jain pointed out that this shift has resulted in a decline in bank deposit growth, with bank credit growth outpacing deposits due to a rising reliance on short-term non-retail deposits. As household borrowings increase, the impact on monetary policy becomes evident. The report suggests that while the Reserve Bank of India (RBI) is expected to cut rates by 75 basis points, challenges remain, particularly with asymmetric monetary transmission. This situation makes it difficult for banks to lower deposit rates, as the gap between credit demand and deposit supply widens.With around 25% of market borrowings being funded through small savings schemes, Jain emphasized the importance of understanding this dynamic. The government’s efficiency measures in cash management have reduced the liquidity available to banks, exacerbating the challenge. As India navigates these complexities, the focus will be on fostering sustainable growth while addressing the evolving needs of consumers in a changing economic landscape.