Private banks outpaced their public sector counterparts in raising fixed deposits during the third quarter of the current fiscal. They raised Rs 1.59 trillion in fixed deposits during the three-month period, registering a 4% quarter-on-quarter (q-o-q) growth. Public sector banks managed to mobilise Rs 1.18 trillion during the same period, showing a growth of 1.7% q-o-q, according to the Reserve Bank of India’s (RBI’s) data. Small Finance Banks (SFB) have registered 6.9% q-o-q rise by raising Rs 8,390 crore during the reported quarter.
With liquidity in the banking system staying tight and credit demand firm, the banking system system is witnessing stiff competitions to attract depositors.
“Our focus is on metro cities and urban centres, but instead of targeting new customers we are trying to look at our existing customers who are using our products and services but do not have accounts with us. Our team approaches these customers and convince them to open fixed deposit account with us,” a retail banking head of a private lender told FE. “This strategy has worked well for us and we have acquired many customers of other lenders, including public sector banks,” he added.
Private sector banks have raised a majority of term deposits from metro and urban cities. Of the total Rs 41.11 trillion term deposits raised as of December 2023, the share of metro cities is Rs 27.43 trillion, while share of urban cities is Rs 8.2 trillion. In the case of public sector banks, the share of metro cities is Rs 36.75 trillion, while that from the urban cities is Rs 15.94 trillion. The rest of the funds were raised from semi-urban and rural centres.
Tight liquidity conditions in the banking system coupled with high demand for loans compelled lenders to offer high rates on FDs to attract depositors. Smaller banks gave strong competition to mid-size and large banks by hiking FD rates. While large banks are offering 6.5 to 7.5% interest on FDs, smaller banks, which are more aggressive, are giving 9 % interest on select FDs. “Banks are unlikely to see any relief from tight liquidity in the fourth quarter and credit growth will stay strong in January-March period. It means banks will continue to struggle to raise funds in the short term,” said an economist of a public sector bank. “Slower deposit growth in banking system is also putting pressure on the lenders,” he added.
Banks’ struggle to garner deposits has led to a slower growth in deposits, while credit growth has far exceeded the pace of deposit growth. Credit demand has increased by 20.3% year-on-year (y-o-y) to reach Rs 161.5 trillion, for the fortnight ending February 9 while deposits have grown by 13.6% y-o-y to Rs 202 trillion according to Care Ratings report.
Growth in credit includes the impact of HDFC’s merger with HDFC Bank along with the growth in personal loans. Excluding the impact of the merger, credit grew at a lower rate of 16.3% y-o-y for the fortnight compared to last year’s growth of 16%. In case of deposits, excluding merger impact, growth stood at 13%.