Banks Expect Higher Inflows Into Fixed Deposits As Investors Seek Safe Harbour After Franklin Templeton Issue

Banks are gearing up for a rise in deposits from retail customers as they move to safer investment opportunities after Franklin Templeton Mutual Fund announced it would be shutting down six of its debt funds.

“Corporates would still look at high yields, but retail customers are considering term deposits as a safer option as many are redeeming their investments in MFs,” said a banker on the issue.

Other banks have also reported increased interest in their term deposits from customers in recent days, despite lower interest rates. For instance, State Bank of India is offering interest of 5.7 per cent for a one to two-year deposit for amounts below ₹2 crore.

Sumant Kathpalia, Managing Director and CEO, IndusInd Bank had also said last week that the lender expects more deposits are coming in as much money is getting redeemed from mutual funds.

Sankarson Banerjee, CIO, RBL Bank said the lender is seeing increased traction in digital transactions including the opening of fixed deposits since the lockdown period. While he did not attribute it to the redemption of MFs, he said that opening of fixed deposits using digital channels in the last week had doubled for the bank compared to before coronavirus.

Investment advisors too attribute to the fact that retail customers are flocking towards more liquid and safer investment options after the Franklin Templeton issue.

“There has been high redemption in mutual funds since the Franklin Templeton announcement, with many investors even pulling out money from equity funds as they are concerned about the safety of their money, especially during this trying period of the lockdown,” noted a Mumbai based investment advisor, who did not wish to be named.

Rattling investor confidence, Franklin Templeton had late last month announced closing down of six of its debt schemes.

According to data from the Association of Mutual Funds in India, credit risk funds registered net redemption of ₹8,186 crore over the past week, following the turbulence created by the sudden closure of six debt-oriented schemes by Franklin Templeton. Net redemptions under such funds peaked to ₹4,294 crore on April 27 against ₹2,949 crore on April 24.