HOW DO BANK SPECIFIC FACTORS EFFECT DEPOSIT GROWTH? SOME FINDINGS FROM INDIAN BANKING

Paper Number :WP/09/2021
Publication Date :Dec. 30, 2021

Growth of deposit in banks is primarily influenced by macro-economic environment factors. However, despite facing similar business conditions, some banks are able to achieve higher and sustained growth of deposits than others, which indicates to the importance of bank specific factors for deposit growth. This study attempts to determine how these factors matter in Indian banking. Using panel data of thirty eight banks for period 2009-10 to 2018-19, it finds six types of such factors to be influencing the growth rate of deposits. First, the size of saving deposit in banks imposes a lowering effect on growth of most types of deposits. Second, the impact of maturity of deposit portfolio is significant, as banks that depend on short term deposits are able to achieve higher growth. In contrast, banks that have a higher base of long term deposits have lesser growth rate. Third, growth rates of deposit products, such as demand and saving, are reciprocally dependent on each other. Being transaction deposits they may share the same causal factors, such as franchise value in local markets or improvements in service quality, leading to their growth. Fourth, the influence of size of branch network seems to be diminishing for growth of both savings as well as demand deposit. Also, higher number of branches in urban and metro centers have a negative effect on growth of demand deposit. Fifth, the impact of cost of deposit is significant and having a lowering effect on growth of deposit. Sixth, growth of credit emerges as an important determinant of growth of demand and term deposit but not for savings deposit.