An internal RBI study shows that post-demonetisation, Indian households, who habitually rely on fixed deposits in banks for their income, have shifted to savings deposits. It also says that households still prefer to hold cash for their transactional needs, suggesting a premium on liquidity induced by the demonetisation shock. Data shows that the share of savings deposits in the total deposits of households touched a new high of 41.7% in March 2018 against 36.9% in 2016. In tandem, the share of fixed deposits fell to 52.5% in 2018 from 57.7% in 2016.

The shift is despite the lower rates on savings deposits of banks. Demonetisation partly explains this jump. However, higher dependency on cash in most states even after re-monetisation is discouraging.

Households account for about 60% of deposits with Indian banks. When banks lower deposit rates, the future looks bleak, especially for seniors who rely on term deposits. There must be a concerted campaign to raise financial literacy so that people have access to other viable saving instruments.

The government must allow all senior savers to access the Tier 2 account of the National Pension System, which offers low-cost fund management and superior returns without a lock-in period. Younger people in the workforce should join the National Pension System that enables them, at low cost, to acquire diversified claims on the incomes generated by the country’s production capacity. They would get the benefits of professional fund management, pooling risk and diversifying asset classes, besides tax exemptions.

Reducing dependency on cash calls for bringing down the cost of electronic payments, for low-income households. Higher income brackets need more reasonable taxation, to be comfortable with payments that leave an audit trail.