Uday Kotak Advocates for a Comprehensive Perspective on Financial Services Amid Shifting Savings Trends

Uday Kotak Advocates for a Comprehensive Perspective on Financial Services Amid Shifting Savings Trends

Mumbai: Uday Kotak, the founder of Kotak Mahindra Bank, has called for a reevaluation of how financial services are viewed in India, emphasizing the need for a broader approach that goes beyond traditional bank deposits.

In a recent post on social media, Kotak shared insights from a Kotak Institutional Equities report revealing a decline in the share of bank deposits within household financial assets, which dropped from 53% in 2014 to 42% in FY2024. The data highlighted that the share of current accounts halved from 4% to 2%, while savings accounts fell from 21% to 17%. Fixed deposits saw the most significant decline, plummeting from 33% to 23%.

Kotak remarked, "As savers transition to investors, it's evident that our perspective on financial services must evolve. The drop in bank deposit shares signals a need for a more holistic approach to financial offerings." His comments reflect the diversified nature of his group's services, which encompass capital markets and insurance, among others.

In its latest quarterly results, Kotak Bank reported a 7% increase in consolidated profit to ₹4,435 crore, excluding extraordinary gains. Notably, Kotak Securities experienced an impressive 83% profit growth to ₹400 crore, driven by increased market activity. Similarly, Kotak Asset Management Company saw a 65% rise in profits to ₹175 crore, buoyed by a significant growth in average assets under management (AUM).

The trends observed are not isolated; other major banking groups like State Bank of India, HDFC Bank, and ICICI Bank also house substantial mutual fund and insurance operations. The shift in household financial behavior, particularly the migration of savings into equity markets, indicates a potential structural change rather than a temporary trend, as evidenced by continued investments during market corrections.

Recent discussions have revolved around the reasons behind the declining share of bank deposits, with many attributing the shift to lower post-tax returns on fixed deposits compared to equities. However, some experts argue that this change does not significantly impact systemic deposit levels, suggesting it may stem from reduced money creation by banks.

RBI Deputy Governor Michael Patra noted that the slowdown in bank deposit growth could also be linked to increased consumer spending post-pandemic. He observed that while savings surged during the COVID-19 crisis, spending patterns have now normalized, with households transitioning their savings into physical assets, such as real estate.

Patra highlighted the evolving dynamics of household savings, suggesting that while financial savings are stabilizing, the movement towards physical savings is also a noteworthy trend.