Rattled by the shock closure of some high-profile domestic funds investing in high-yielding debt, Indian investors are quickly moving their cash into the safety of bank deposits. Bankers told news agency Reuters they have seen heavy inflows into their traditional deposit schemes after one of the country’s most prominent mutual fund houses in fixed income, Franklin Templeton Mutual Fund, said last week it was shutting down six credit funds.
Templeton wound up the funds due to a lack of liquidity in markets battered by the coronavirus pandemic. Their combined assets of about Rs 28,000 crore had large exposures to higher-yielding, lower-rated credit securities.
As spooked investors called for a government intervention and debt mutual funds saw record withdrawals, traditional bank deposits have gained.
“Bank deposits have picked up, as a lot of money that is getting redeemed from mutual funds is also coming to banks now,” said Sumant Kathpalia, CEO of IndusInd Bank.
Flush with cash, banks have cut deposit rates. The weighted-average deposit rate of commercial banks is down 45 basis points since February 2019. Still, bank deposits grew by 9.45 per cent year-on-year in two weeks ended April 10 compared with a 7.93 per cent rise two weeks prior.
While up-to-date figures on the flows into deposits after the Templeton news will only be known next month, growth is expected to remain in low double digits in the coming months, said an executive director at a state-run bank.
Mutual funds investing in debt saw outflows of close to Rs 1.95 lakh crore last month.
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