Banking Growth May Slowdown In Q4 Due To Regulatory Actions: Icra

Karthik Srinivasan, Senior Vice President and Group Head at Investment Information and Credit Rating Agency (Icra), has cautioned that the Indian banking sector could witness a slowdown in the January-March quarter of the financial year 2023-24, attributing it to recent regulatory interventions in the sector.

In a webinar hosted by the agency, Srinivasan noted that traditionally, Q4 has been a period characterised by momentum and stability for the banking sector. However, he anticipates a deceleration in Q4FY24 due to regulatory measures.

The Reserve Bank of India (RBI) has implemented several regulatory actions on various entities in recent months. For instance, on 31 January, the RBI imposed business restrictions on a bank due to repeated violations of norms and non-compliance with multiple rules. 

Furthermore, on 4 March, IIFL Finance was instructed by the RBI to cease sanctioning or disbursing gold loans immediately following the observation of material supervisory concerns in the company's gold loan portfolio. Additionally, on 5 March, JM Financial Products (JMFPL) was barred by the central bank from offering loans against shares and debentures, including the sanction and disbursal of loans against Initial Public Offering (IPO) of shares, with immediate effect.

Regarding the Credit-Deposit (CD) ratio, the RBI has recently expressed concerns about the high CD ratio of certain banks. Srinivasan highlighted that the sector's incremental CD ratio has been approximately 100 per cent over the past 2-3 years. He further remarked that challenges have surfaced concerning banks' deposit growth, anticipating a slowdown in deposit growth for banks in Q4.

These regulatory actions and concerns regarding the CD ratio signify potential challenges for the banking sector in the upcoming quarter, according to Icra's assessment.