Finance Minister Nirmala Sitharaman urges state-run banks to boost deposit mobilization aligning with loan growth. SBI Research notes a shift in youth investment preferences, with bank deposits losing appeal due to lower post-tax returns compared to riskier assets. 47% of term deposits are held by seniors, signaling a move away from traditional banking. Sitharaman calls for tax review on deposits, emphasizing improved customer relations and cybersecurity. The rise in mutual funds and tax impact on deposits reshape investment trends.

In a bid to bolster deposit mobilization and align with the burgeoning loan growth, Finance Minister Nirmala Sitharaman has encouraged state-run banks to ramp up their efforts. During a recent meeting with public sector bank leaders, the Finance Minister's proactive stance aimed to address a notable shift in investment preferences among younger individuals.

SBI Research data highlighted a trend where bank deposits, once favored for their reliability and liquidity, are losing their allure among the youth. Despite being a secure investment avenue, deposits are now facing a challenge as their post-tax returns pale in comparison to riskier assets like mutual funds and equities.

An analysis by SBI revealed that a significant 47% of term deposits are currently held by senior citizens, indicating a generational shift away from conventional banking instruments. In stark contrast, the median age of investors in capital markets has plummeted to 32 years, with a substantial 40% below the age of 30.

To address these evolving dynamics, the Finance Minister proposed a review of the tax framework governing bank deposits. Senior citizens currently enjoy slightly higher returns from most banks and can claim exemptions from tax deduction at source. Yet, with lending growth outstripping deposits, both the RBI and the Finance Ministry have underscored the urgency of tackling this issue promptly to avert any potential systemic risks in the future.

During the meeting, Sitharaman stressed the importance of banks enhancing customer relationships, particularly in rural and semi-urban regions. She also emphasized the need for banks to fortify their technological infrastructure against cyber threats to safeguard their systems from potential breaches.

The Finance Minister's holistic approach to cybersecurity called for a coordinated effort involving banks, government entities, regulators, and security agencies to fortify defenses against cyber risks. Regular comprehensive reviews of IT systems from a cybersecurity perspective were urged to ensure the integrity of bank systems.

The crux of the matter lies in the changing investment landscape, with stock markets thriving and mutual funds gaining prominence, prompting a significant number of investors, particularly younger ones, to veer away from fixed deposits. Tax implications have also played a role in making fixed deposits less attractive.

The SBI report proposed revisiting the tax treatment of deposits, advocating for taxation at the time of redemption rather than on an accrual basis. The analysis conducted by SBI spanning over five decades underscored the impact of taxes on deposits, revealing a notable reduction in deposits due to taxation.

Despite the soaring growth in mutual fund investor accounts over the years, the report highlighted a trend of investors diversifying their portfolios across multiple funds rather than a surge in unique investors. This trend underscores the evolving investment behaviors and preferences among individuals in the financial landscape.