After struggling to match the pace of the credit growth in FY24, banks’ deposits will likely grow by 100 basis points (bps) at 13.5% year-on-year (YoY) in FY25, from an estimated 12.6% YoY growth in FY24, experts say.
“After a prolonged slowdown, the overall deposit growth is finally seen picking up to some extent, aided by bulk & retail deposits, albeit at a higher cost,” said a report by Emkay Global Financial Services. While overall deposits are likely to rise by 13.5% YoY in next fiscal, the credit growth could sharply moderate to 11.5% YoY in FY25, from 21% in FY24, leading to moderation in the credit-deposit (CD) ratio, Emkay said.
The report said that branches would remain the indispensable source of deposit mobilisation, not only in India but also in foreign countries. Branches help banks deepen the retail lending business in non-metros and, thus, feed it back into retail deposit growth. Additionally, though metros remain key contributors of deposits, their share is on a steady decline.
“Hence, we believe banks focusing on Urban + semi urban and rural branches (including ‘Hindi heartland states, given their long- term potential on credit/deposit front) will benefit in the long term,” the report said.
Levers of deposit growth
Largest private bank HDFC Bank has been heavily investing in branch building, as its branch network rose from 7,183 in December 2022 to 8,091 in December 2023. “Our branch network stood at 8,091 outlets as of December end. Overall, there has been an increase of 908 branches over the last 12 months. During the quarter, we added 146 branches, which is at the rate of 1.6 branches per day,” said HDFC Bank CFO Srinivasan Vaidyanathan in a post-earnings call.
Apart from branch expansion, banks also need to focus on other strategies, including community banking, improving self-funding ratio of business customers, capturing corporate, small and medium enterprises (SME) clients, customer flow via transaction banking, cash management services, and retail customer cash flow service via wealth management and corporate salary flow to survive and thrive in the ensuing war for retail deposits.
A senior private bank official told FE that the lender is holding customer service reviews on regular intervals to ascertain customer satisfaction with the bank, so that the customer does not shift their deposits to other lenders.
Small and mid-sized private banks are also likely to raise interest rates to attract deposits. For instance, ESAF Small Finance Bank MD, CEO K Paul Thomas in a recent interaction with FE said while small lenders would take time to build low-cost current account and savings account (CASA) base, the lender is currently focusing on savings account more by giving attractive rates.
“We are also trying to mobilise deposits from our large micro loan customer base. We did not target them earlier for mobilising deposits and have now created a separate micro liability team. So building deposits from this customer base will take time, it will not happen over night, but we see it as a good opportunity,” he said. The SFB’s overall deposits stood at `18,860 crore as on Q3FY24 end. CASA ratio, meanwhile, stood at 19%. The SFB is targeting 16%-18% growth in deposits in Q4FY24—in line with the last seven years’ trajectory, Thomas said.
YES Bank MD and CEO Prashant Kumar said the lender’s cost to deposits has likely peaked at 6.1% in Q3FY24. Its overall deposits rose 13% YoY and 3% quarter-on-quarter to `2.41 trillion as on December 31, 2023. One of the reasons for the sequential growth in deposits, Kumar said, was the focus on branches which attracted a lot of deposits. “Secondly, premium convenience and quality of service to customers, along with branch expansion and digital side earlier, are bearing good results,” he said.