It’s a common practice for people to tag along with their mother or father to open a deposit, especially fixed deposits. Fronting a senior citizen helps earn an additional 0.5% interest on deposits, and it gets even better with a super senior citizen, someone aged 80 or above. Deposit rates become more attractive by another 0.75% or more. It’s also not unusual to see older people accompany others to get things done at bank branches, not because their presence is truly required, but because it may help speed up the process.
In short, most services in the banking sector are favourable towards senior citizens and super senior citizens. This is a good thing, exactly how it should be. But there lies the irony of the Indian banking system. Banks aim to make their products more inclusive for the youth and customers in the prime age bracket of 28-55 years. However, when it comes to deposits, this age group is the most neglected.
Youth Excluded from Deposit Schemes
It is senior citizens and super senior citizens who are entitled to much higher interest rates, while in reality, relationship managers and branch heads are told to focus on the prime income category, the one that is contending with interest rates of 6.9-7.7%. As a result, this segment may not want to keep more than necessary in their bank accounts and may move the rest of their money to higher-yielding products. In short, for the prime earning demographic, deposits are no longer seen as a viable investment avenue. Simply offering a sweep product, where excess funds above a certain limit determined by the customer are moved into fixed deposits, is no longer a unique proposition. Introduced almost a decade ago, it has now become the minimum expectation for customers.
Furthermore, people in this age group are well aware of the standard disclaimer that equities and mutual funds are subject to market risk and may not consistently provide returns that beat inflation. Yet, they are willing to increase their exposure to equities, thanks to the extensive advocacy around this investment option.
Need for Innovation in Banking Products
Unless banks are willing to think outside the box, capturing the younger demographic may remain a distant dream for the sector. For instance, how about introducing an equity-like product through deposits, with the insurance cover of ₹5 lakh acting as a base guarantee for depositors? This could enhance the upside potential for both banks and depositors, with risks covered and easing the strain on banks (particularly regarding the deployment of funds), at least partly. A bit of innovation could also help attract larger deposits. More importantly, as in the 90s, this might place deposits back on the map as an investment product for the young. But all this depends on the regulator and the government being willing to think outside the box and support banks in the process of innovation.
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