Bank Deposits Expected To Grow By 13.5% In FY25

Following a struggle to keep up with the pace of credit growth in FY24, experts anticipate that bank deposits will experience a year-on-year (YoY) increase of 100 basis points (bps) to 13.5 per cent in FY25, up from an estimated 12.6 per cent YoY growth in FY24.

According to a report by Emkay Global Financial Services, the overall deposit growth is expected to see an uptick, primarily driven by bulk and retail deposits, albeit at a higher cost. While deposits are forecasted to rise by 13.5 per cent YoY in the next fiscal year, credit growth is likely to significantly moderate to 11.5 per cent YoY in FY25, down from 21 per cent in FY24, leading to a moderation in the credit-deposit (CD) ratio.

Branches are identified as an indispensable source for deposit mobilisation, both domestically and internationally. They play a crucial role in deepening retail lending business in non-metro areas and contribute to retail deposit growth. Although metros continue to contribute substantially to deposits, their share is gradually declining.

Emkay's report suggests that banks focusing on urban, semi-urban and rural branches, including those in Hindi heartland states, will reap long-term benefits on the credit/deposit front.

HDFC Bank, the largest private bank, has heavily invested in branch expansion, with its network growing from 7,183 in December 2022 to 8,091 in December 2023. Other strategies for deposit growth include community banking, improving the self-funding ratio of business customers, targeting corporate and SME clients, transaction banking, cash management services and retail customer services such as wealth management and corporate salary flow.

To retain customers and attract deposits, banks are conducting regular customer service reviews. Smaller and mid-sized private banks are also expected to raise interest rates to allure deposits. For instance, ESAF Small Finance Bank is focusing on building its savings account base and mobilising deposits from its micro loan customer base.

YES Bank's MD and CEO stated that the bank's cost-to-deposits ratio likely peaked at 6.1 per cent in Q3FY24. The bank's deposits increased by 13 per cent YoY and 3 per cent quarter-on-quarter to Rs 2.41 trillion as of 31 December 2023, attributed to branch expansion and superior customer service.