The sluggish deposit growth poses a risk to achieving higher economic growth, says Rajiv Anand, deputy managing director, Axis Bank. In an interview with Sachin Kumar, Anand speaks of the challenges facing the banking sector, including declining credit growth, stress in unsecured loans and tight liquidity. Excerpts:
How will sluggish deposit growth impact banks?
Asset growth has declined from around 16% early last year to 11% now. If the deposit growth continues to remain weak, it could slow to high single digits or around 10%. Achieving the aspiration of 7% GDP growth requires a higher credit growth, which is unattainable without stronger deposit growth.
For credit growth to pick up, deposit growth must improve across the industry. Without robust deposit and credit growth, GDP expansion will remain below potential, as seen in the recent 5.4% GDP number.
How can deposit growth be revived?
Currently, the deposit environment is constrained by multiple macroeconomic factors. For instance, the rupee’s depreciation implicitly tightens liquidity. Additionally, fiscal tightening by the government exacerbates liquidity challenges. Addressing these issues requires both monetary and fiscal stimulus to improve liquidity. Enhanced liquidity will lead to deposit growth, which will drive credit growth and activate the money multiplier effect.
How will tight liquidity impact banks’ deposit and credit growth?
When the liquidity deficit is high, it becomes difficult for banks to grow deposits, which, in turn, limits credit growth. The RBI has several tools to address this, but global factors are adding to the challenge.
For example, a strong US dollar and rising US interest rates are pulling funds out of emerging markets, creating additional liquidity pressure in India. The RBI is currently battling with rupee volatility, liquidity shortages, and inflation. This situation is complex, and I think 2025 could be a year of heightened volatility. Given these challenges, banks need to focus on managing liquidity and risk effectively in the near term.
When do you expect the RBI to start lowering rates?
A rate-cut cycle is unlikely to begin soon unless liquidity improves, as tight liquidity would hinder effective rate transmission. The RBI’s immediate focus is on improving the market’s durable liquidity position. We are not very hopeful of a rate-cut cycle starting anytime soon, and even if it does, we believe that it is probably going to be very shallow where we get at best 50-bps cut in the current cycle.
What is Axis Bank doing to garner more deposits?
On the retail side, we are actively expanding our branch network while enhancing the productivity of existing branches to improve customer engagement. At the same time, we have fortified our digital capabilities to offer seamless services, making it easier for customers to transact with us.
Additionally, we are increasing the number of salary accounts by leveraging our strong corporate relationships and deepening our connections with trusts and other institutions to strengthen our retail deposit base.
In the corporate segment, with corporate India currently flush with liquidity, we are well-positioned as the primary banker for many businesses, which ensures we receive a fair share of their deposits. The government segment forms another crucial part of our deposit strategy. By focusing on these three areas—retail, corporate, and government—we are steadily driving deposit growth and converting increased throughput into a larger deposit base.
Rising stress in unsecured loans has become a concern for lenders…
Most banks and NBFCs have experienced an increase in slippages in unsecured and microfinance loans. At Axis Bank, we have tightened its underwriting standards for new loans and increased focus on collections to improve efficiency. These measures are expected to improve the situation over the next couple of quarters.
What is your outlook for banking sector credit growth this year?
Credit growth will remain subdued unless deposit growth improves. Without sufficient deposits to fund asset growth, whether a bank takes an aggressive or conservative stance becomes irrelevant. Deposit growth is the key determinant of the banking system’s ability to expand its assets.
Which are the segments in which Axis Bank is looking to be a leading player?
Axis Bank aims to be the most trusted bank for its customers. To achieve this, it has launched an internal program called ‘Sparsh,’ which focuses on delivering exceptional customer experiences across all channels. Providing a seamless omnichannel experience is a priority, ensuring customers have delightful interactions regardless of the channel they use. While this is a medium- to long-term journey, Axis Bank believes that excelling in customer experience will naturally lead to dominance in major banking segments.