Position of Deposits in India

The nationalization of the banks was a turning point in the financial history of the country. It boosted the faith of the public and since then the banks have been able to mobilize a considerable size of financial savings of the household sector in India. Today, bank deposits are the dominant instrument of savings in India.

Size of Household Saving:

To understand this we go to Economic Survey 2009-10.

• Gross Domestic Savings (GDS) at current prices in 2008-09 were ` 18,11,585 Crore which amount to 32.5% of GDP at market prices.
  
• It was 36.4% in 2007-08. This fall has been attributed to the fall in the rates of savings of the public sector which stands at 1.4% in 2008-09 with respect to 5.0% in 2007-08.
  
• The 32.5% growth is subdivided as follows:
  
  • Public Sector : 1.4% + Private Sector: 31.1 %= Total : 32.5 %
    

The 31.1 % of Private sector savings has largest fraction of household sector (22.6% which amounts to 70% of the total private Sector), further the Financial saving is 10.4%, Saving in Physical assets is 12.2% and Saving in Private Corporate sector is 8.4 %.

As per the RBI report 2008-09, the Financial Savings of the Household sector remains mobilized as follows:

Figures are approximate in percentage

• Currency                         12.50%
  
• Deposits with Banks                     55%
  
• Deposits with Non-Banking Companies            1.80%
  
• Insurance Funds                     20.10%
  
• Provident and Pension Funds                 9.50%
  
• Others (after decreasing Government liabilities)         1.10 %
  

Share of banks in Deposits:

We can see, that the largest fraction of the household savings is in the form of Bank Deposits, followed by Insurance . The following table shows the share of the banks in this deposit:

Who decides Interest rates on bank Deposits?

Before 1992, banks had no freedom to decide the deposit interest rates. After the process of deregulation of interest rates started in April 1992, almost all the interest rates have now been deregulated and the banks have the freedom to fix their own deposit rates. (Few exceptions are there). RBI now prescribes interest rates only in respect of savings deposits and NRI deposits.