With yields on capital market offerings remaining high, the interest rate on deposits are likely to rise further, CareEdge Ratings said in a report on Thursday.
Credit offtake rose 19.5% year-on-year (y-o-y) to Rs. 166.1 trillion for the fortnight ended May 17. Deposits grew 13.3% y-o-y to Rs 208.1 trillion as on May 17, 2024, driven by growth in time deposits.
In April, there was pressure on outstanding spreads due to growing competition among banks as well as a slowdown in the growth of unsecured lending. The spreads between the outstanding lending rate and deposit rate have been hovering below pre-COVID19 levels since June 2023. This is exerting pressure on net interest margins, the credit rating agency said.
In recent months, the spread between the outstanding lending rates and deposit rates has narrowed compared to the spread between fresh lending and deposit rates.
The spread of banks between the outstanding lending rate and outstanding deposit rate stood at 2.90% as of April 2024. However, it fell 5 basis points(bps) month-on-month(m-o-m). Private banks continue to maintain a higher spread given that they charge a higher interest rate as compared to public sector banks.
The fresh spread of private banks fell 12 bps to 3.56% in April. The spread of public sector banks rose 42 bps to 2.13%.
“With RBI turning the heat on unsecured lending products, banks’ exposure to high-yield products such as unsecured personal loans which have remained high but at a reduced rate, lending rates could also witness some pressure,” the rating agency said.
“As the Credit to Deposit ratio remains elevated, growth in the liability franchise would play a significant role in sustaining loan growth,” it added.