External Borrowings To Meet Capital Needs Putting Pressure On Banks NIMs: Report
Slowdown in deposit growth has led to banks increasingly relying on external market borrowings for their capital requirements, says report
The banks in the country are facing challenges due to a slowdown in deposit growth, according to a recent report by SBI Securities. The slowdown in deposit growth has forced the banks to rely more heavily on external market borrowings to meet their capital needs.
The report also highlighted that this growing dependence on market borrowings, combined with intensified competition among banks to attract deposits, has put significant pressure on their net interest margins (NIMs).
“Slowdown in deposit growth has led to banks increasingly relying on external market borrowings for their capital requirements. This coupled with the fight for deposits has created pressure on bank NIMs,” said the report.
The report also provided insights into sectoral credit deployment for June 2024. Notably, credit growth to agriculture and allied activities has reduced, with growth declining to 17.4 per cent in June 2024 from 19.7 per cent in June 2023.
This slowdown indicates a cautious approach by banks towards lending in this sector, potentially due to concerns over repayment risks or reduced demand for credit. In contrast, the report data indicated that the industrial credit witnessed a modest increase, growing by 8.1 per cent year-on-year (YoY).
Sectoral deployment data for June 24 Credit growth to agriculture and allied activities declined to 17.4 per cent in June 24 against 19.7 per cent in Jun'23. Industrial credit grew 8.1 per cent YoY, the report added.
In the digital payments space, the report noted that the unified payment interface (UPI) continues to demonstrate strong performance. In July 2024, UPI transactions reached 14.4 billion, representing a substantial 45 per cent YoY growth.
The value of these transactions also remained robust, exceeding Rs 20.0 trillion and registering a 35 per cent YoY increase. However, the report also added that the YoY growth in both transaction value and volume has been slowing since March 2024, a trend attributed to the normalisation of the base as UPI has already achieved widespread adoption.
YoY growth in both transaction value and volume has been slowing down since March 24 driven by normalisation of the base, stated the report. (ANI)
