Zero-risk bank deposits turn attractive option for households

New Delhi: A high interest rate scenario, wherein, people can get almost 10 percent returns on low-risk products like fixed deposits is coming in way of a diverse equity culture getting developed in the country, experts say.

“One of the reasons for equity culture not developing to desired levels is the high interest rate scenario in the country. A high interest rate environment makes people relatively relaxed and complacent, when it comes to making investments,” global banking giant Citigroup’s head of markets (South Asia) Pankaj Vaish said.

For most households, it is attractive to park the money in a bank account and other deposits for almost 10 percent returns with virtually zero risk, against risking their money with equity even if the returns could be higher, he said.

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Vaish, who was here for an event organised by Citi in partnership with Cambridge-based renowned business school MIT Sloan School of Management, said it will take some time and investor education for the people to get comfortable with the equity culture.

“It is a competitive marketplace, when you see the equity market pitched against corporate bonds providing interest at around 10 percent, by some of the big names in the public and private sectors. Our culture is such that people are more comfortable ensuring the security for their investments, rather than merely looking for high returns. Hopefully the next generation would have the appetite to take greater calculated risks,” Vaish added.

Asked about India’s growth potential on the global stage, Vaish said that there was a time when people here were satisfied with a 3 percent growth rate, but the times have changed and the aspirations are high today.

This is something we need to be cognizant and careful about in a democracy. At times we blame the slowness in the economy on our democracy, but it is the democratic systems and institutions which ensure that the aspirations of our citizens are met.

“If the aspirations are not fulfilled and we do not provide the opportunities to our youth, then not only is it an unused asset but the accumulated unfilled aspirations can be a huge debt that we will have to service,” he said.

Asked about the issues before Indian economy, MIT Sloan School of Management’s deputy dean S P Kothari said leaders of the country need to introspect why India is given low rankings on various economic parameters by the agencies like the World Bank and UN.

“We should understand that they are not conspiring against India and if you see there is actually a good amount of goodwill out there for India. There is a lot that is going on in favour of India, but at the same time we need to understand that we need to change. We have to change quite dramatically,” Kothari said.

Asked whether the delays caused by democratic processes are coming in way of India’s growth on global stage, Kothari said that many countries have got democracies but they do not necessarily come in the way of conducting business.

“For example the stalemate in the U.S. Congress is not allowed to hurt the U.S. economy... India needs to show what are the measures that would convince the world that the problems are no longer there,” he said.

Kothari said that if India manages to take its FDI inflows to the level of $250 billion a year, it would roughly translate into an improvement in the GDP growth rate by about 2-3 percent.

“Therefore, if we want 9-10 percent growth rate, this $250 billion FDI would get us there,” he said.

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