A recent report by SBI Research has highlighted a significant divergence in investment preferences between senior citizens and younger investors, leading Finance Minister Nirmala Sitharaman to urge public sector banks to ramp up their deposit mobilisation strategies.
According to the report, nearly 47% of fixed deposits (FDs) are currently held by senior citizens, reflecting their preference for secure investments despite the declining post-tax returns. Senior citizens continue to invest in FDs as a reliable option for steady income, even as the returns have been diminishing over time.
In contrast, younger investors are increasingly leaning towards riskier assets. The median age of capital market investors has dropped to 32 years, with 40% of investors being under the age of 30. This demographic shift is evident in the dramatic rise in mutual fund investor accounts, which have surged nearly fivefold. The number of such accounts grew from fewer than 4 crore in March 2014 to over 19 crore by June 2024.
The report suggests that the current tax treatment on bank deposits might be contributing to this shift. SBI economists have proposed that taxing deposits at the time of withdrawal, rather than as they accumulate, could make fixed deposits more attractive and potentially stimulate deposit growth. The current tax system is believed to have impeded deposit growth by approximately 7%.
In response to these evolving investment trends, Finance Minister Sitharaman has called on public sector banks to enhance their deposit mobilisation efforts. She emphasized the need for banks to implement special campaigns aimed at increasing deposits, particularly in rural and semi-urban areas. Additionally, Sitharaman stressed the importance of strengthening customer relationships and bolstering cybersecurity measures to safeguard against rising threats.
The focus on boosting deposit mobilisation comes as banks face the challenge of balancing loan growth with the need to attract and retain depositors. By addressing these areas, the government aims to ensure a more robust and secure financial system that accommodates the changing preferences of investors across different age groups.
