YES Banks Retail FDs Have Nearly Doubled Over Two Years

The RBI placing restrictions on the withdrawal of deposits from YES Bank at ₹50,000 has rattled depositors. A look at the trend in deposit flow into the bank over the past two years suggests that retail customers have been increasingly parking money in the bank, possibly lured by the relatively higher interest rate it offered on its deposits.

From about ₹36,000 crore in the March 2017 quarter, retail term deposits at YES Bank shot up to ₹61,700 crore in the September 2019 quarter. From FY18 to FY19 alone, retail fixed deposits grew at a robust pace vis-à-vis corporate FDs. From 20.8 per cent of deposits in March 2018, the share of retail FDs in total deposits shot up to 25.7 per cent by March 2019, growing 40 per cent. Corporate FDs, on the other hand, grew a lower 16 per cent in FY19.

In the first half of FY20, the share of retail term deposits spiked to 29.5 per cent, as corporates appeared to have pulled out deposits from YES Bank. Between March 2019 and September 2019, while retail FDs grew 5 per cent, corporate FDs shrank 10 per cent.

Higher rates

Interest on savings account was deregulated in October 2011. But, for a long time, nearly all banks had stuck with offering a 4 per cent rate on savings deposits. A few, though — YES Bank, Kotak Bank, IndusInd Bank and Lakshmi Vilas Bank — chose to offer higher rates (5-7 per cent) in a bid to garner a greater market share.

YES Bank, which offered 6-7 per cent interest on savings deposits until March 2015, started to trim rates in line with other private sector banks. Yet, it currently offers 5-6.25 per cent on its savings deposits when other leading banks offer up to 3.5 per cent.

The relatively higher rate has helped YES Bank increase its savings deposits over the years. Its savings deposits formed just 5 per cent of total deposits in FY12; as of September 2019, the share grew to 19 per cent. The bank currently has nearly ₹40,000 crore of savings deposits.

On fixed deposits, too, YES Bank has been offering high rates of 7.15-7.5 per cent on certain tenure deposits, against the 6-6.5 per cent that most banks offer. Retail term deposits that were just 18 per cent of deposits in FY12 are now at nearly 30 per cent.

Corporates pull out

Between March and September 2019, corporates pulled out close to ₹10,000 crore from fixed deposits, even as retail depositors parked ₹3,000 crore of additional funds in the bank’s FDs. While there have been some withdrawals in the September quarter by retail depositors, it would appear that corporates have been more nimble in pulling out funds since the March 2019 quarter.

YES Bank had a high share of bulk wholesale deposits (non-retail) at 39.7 per cent of deposits, or around ₹83,000 crore, as of September 2019. Massive pullouts from these accounts could be cause for worry when the withdrawal restrictions are lifted.