Banks’ efforts to raise deposits to seem to be paying off, if one goes by the incremental deposit growth in FY25. That is, between March 22 and May 3, deposit growth has risen almost at double the pace of credit growth. During this period, bank deposits have grown by 2.1% to Rs 209.4 trillion while credit rose 1.2% to Rs 166 trillion, according to the Reserve Bank of India (RBI) data.
“Credit demand has remained strong and banks need to raise deposits to fund this loan demand. All the banks have raised deposits rates to attract depositors which has resulted in faster growth in deposits,” head of retail banking of a private bank told FE.
The higher deposit growth has come at a time when lenders are facing fierce competition to mobilise funds. Faced with slower deposit growth in the previous fiscal, several banks hiked deposit rates to attract depositors. Early this month, State Bank of India (SBI) raised interest rates on fixed deposits having maturity of less than one year.
“Banks have shifted their focus towards increasing deposits in the fourth quarter, leading to a rise in deposit growth,” said Dnyanada Vaidya, research analyst, Axis Securities. “We do not believe that this is a temporary trend and we expect banks to continue prioritising deposit accumulation as we move into FY25, in order to maintain a balanced credit-deposit ratio as suggested by the regulator earlier,” he added.
Credit growth across most banks has remained strong and managements continue to express optimism about the buoyancy of credit growth, therefore, banks will need to mobilise deposits to support this growth, he added.
Banks have also stepped up efforts to raise deposits after the central bank expressed concern about high CD ratio of some banks.
“There has been a greater emphasis on improving deposit growth across banks as regulator had earlier expressed concerns over high CD ratio for some of the banks as higher CD ratio may pose liquidity/ credit risk for a lender. Additionally, tight liquidity environment also pose challenge in raising lower cost deposits,” said Rahul Malani, research analyst, Sharekhan by BNP Paribas.
“We believe bank’s deposits are expected to grow by around 13-14% YoY while credit growth is expected to grow by around 12-13% YoY in FY25,” he added.
Helped by strong demand for loans, credit growth significantly outpaced deposit growth in the previous fiscal. Credit offtake increased by 20.2% YoY to Rs 164.3 trillion (including the merger of HDFC twins) and 0.7% sequentially for the fortnight ended March 22, according to Care Ratings. Excluding the impact of the merger, the growth stood at 16.3% y-o-y for the fortnight. Deposits rose at 13.5% YoY to Rs 204.8 trillion for the fortnight ended March 22, and sequentially increased by 0.3%. Without considering the merger, deposit growth was 12.9%.