Last week the Indian government amended the Finance Act to remove tax exemptions for certain debt investment funds. The reason for these changes was the widening gap between write-downs of loans and deposits in banks in India, which caused risks of asset-liability mismatch and increased funding costs. According to experts, the new taxation policy will open the way for Indian banks to attract deposits of up to $36 billion from bank asset managers.
As Indian banks try to maintain a high level of reliability, however, the crisis in the U.S. and the effects of inflation are still affecting the Indian economy. India's economic growth has unexpectedly slowed to 4.4% amid a sharp rise in interest rates and a decline in consumer spending power. At the same time, in the financial sector, the problem of a growing gap between loans and deposits has become a pain point for Indian bankers. For example, according to the Reserve Bank of India, as of March 2023, annual credit growth had risen to 15.7%, compared with a five-year average of 10.3%, while the real return on bank deposits was only 7% per annum. The situation is complicated by the fact that deposit collection rates have not kept pace and currently stand at just over 10%, prompting bankers to look for other ways to raise funds.
Financial analysts predict that the new tax regime will encourage investors who previously invested heavily in mutual funds because of tax benefits to switch to investing in bank deposits. Such a policy may increase the liquidity of banks and allow them to provide more loans to businesses and individuals.
Thus, according to investors, bank deposits can become a more stable and reliable option for investment, as they can provide a guaranteed income due to the absence of significant fluctuations. In addition, this step of the Government will help to stimulate the economic development of India. After all, due to the slowdown of the stock market lenders will be able to increase their profits and direct the received funds to finance social programs and infrastructure projects.
As Indian banks try to maintain a high level of reliability, however, the crisis in the U.S. and the effects of inflation are still affecting the Indian economy. India's economic growth has unexpectedly slowed to 4.4% amid a sharp rise in interest rates and a decline in consumer spending power. At the same time, in the financial sector, the problem of a growing gap between loans and deposits has become a pain point for Indian bankers. For example, according to the Reserve Bank of India, as of March 2023, annual credit growth had risen to 15.7%, compared with a five-year average of 10.3%, while the real return on bank deposits was only 7% per annum. The situation is complicated by the fact that deposit collection rates have not kept pace and currently stand at just over 10%, prompting bankers to look for other ways to raise funds.
Financial analysts predict that the new tax regime will encourage investors who previously invested heavily in mutual funds because of tax benefits to switch to investing in bank deposits. Such a policy may increase the liquidity of banks and allow them to provide more loans to businesses and individuals.
Thus, according to investors, bank deposits can become a more stable and reliable option for investment, as they can provide a guaranteed income due to the absence of significant fluctuations. In addition, this step of the Government will help to stimulate the economic development of India. After all, due to the slowdown of the stock market lenders will be able to increase their profits and direct the received funds to finance social programs and infrastructure projects.