Nimish Shukla/TNN
 
Ahmedabad, Oct 17: It is hard to miss the irony. At a time when the banking industry is in a crisis globally, fixed deposits of public sector banks have emerged as the safest haven for badly hit investors who are frantically liquidating their positions in equity markets and mutual funds.

While asset management companies have started feeling the heat as retail and corporate investors queue up to redeem their funds, branches of public sector banks have seen a rush for term deposits from investors who want to ensure there is no further erosion in their wealth. Investors are even shying away from private sector banks, after the financial crash abroad.

The State Bank of India, the largest state-owned bank, which has launched a special 1,000-day fixed deposit scheme, has mobilized over Rs 5,000 crore across the country in just 12 working days. It is also witnessing huge inflow of money into other schemes.

In Gujarat alone, deposits worth almost Rs 1,000 crore have come so far this month, compared to just Rs 300 crore of inflows into deposits in all of October 2007.

Many PSU banks are seeing infusion of funds, which are getting diverted from the stock markets. "Our term deposits normally grow at 17% annually. If the present trend continues, we could end up with 25 to 30% growth," said a top official of Bank of Baroda. "Our deposit schemes are drawing funds diverted from the stock market," acknowledged H C Pattnaik, chief general manager, SBI Gujarat.

The flight from markets to banks is not difficult to understand. From a peak level of 21,200 on January 10, 2008, the sensex has fallen almost 50%. During the same period, assets under management (AUM) of equity funds have dropped by 22%, while AUM of liquid funds has plummeted by around 44%. Sandeep Dasgupta, CEO, Bharti-AXA MF, admitted that liquid and FMP (fixed maturity plan) schemes have been under redemption pressure from corporate and retail investors.

"As per the industry figure, around Rs 45,000 crore worth of funds have been redeemed in the month of September," he added. Redemption pressure picked up in the second half of September and has only intensified in October following the global financial crisis, he added. Nilesh Shah, deputy MD, ICICI-Prudential Mutual Fund, said that investors are redeeming funds from liquid and FMPs without looking at the portfolio of the fund. "There is a crisis of confidence in the system," he added.