Bank Deposit Growth Hits 13%, Closing Gap With Credit; Tight Liquidity Poses Challenge: Jefferies
Jefferies noted that despite the Reserve Bank of India (RBI) maintaining tight liquidity, there has been a noteworthy 300 basis points (bps) improvement in deposit growth, reaching 13 per cent year-on-year, the highest in six years. This surge is attributed to enhanced GDP growth and a shift towards financial savings rather than investments in gold or land, as outlined in their report.
While this significant rise has reduced the gap between banks' credit and deposit growth from over 700 bps to 300 bps, it remains negative. The challenge for banks lies in securing funds for further growth, according to Jefferies.
Their recent discussions with various banks indicate a limited expectation for liquidity easing. Consequently, banks are prioritising the augmentation of retail deposit mobilisation at branches, offering higher rates and accounting for slightly slower loan growth in their strategies.
Analysts anticipate that the influx of USD 20 billion in foreign liquidity into G-Secs (government securities) could alleviate some liquidity pressures, combining new money supply with the adjustment of aggressive investments in G-Secs by foreign banks in India, witnessing a 50 per cent year-on-year growth in their investment book.
The report highlights disparities in deposit rates across banks. Some smaller private banks are offering higher interest rates of 7-7.5 per cent on savings deposits compared to the peak term deposit rate of 7-7.2 per cent offered by larger banks.
Consequently, Jefferies forecasts a potential decline in the Current Account Savings Account (CASA) ratio for larger banks due to the significant gap of 350 bps between term deposit and savings rates. Larger banks are seen to be adopting a pragmatic approach to pricing.
However, Jefferies warns of potential risks to net interest margins (NIMs) due to increased costs in term deposits and a decline in the CASA ratio. They anticipate a slower impact on margins and suggest that banks might offset this impact through restrained growth in operating expenses and reduced credit costs.
