SFB deposit growth rate betters credit | The Financial Express

SFB deposit growth rate betters credit

Ujjivan Small Finance Bank has also shown a similar trend. Its gross advances rose 44% on year, whereas deposits rose 45% on year.

SFB deposit growth rate betters credit
Equitas Small Finance Bank’s gross advances and deposits rose 20% YoY. (Representational image)

The year-on-year (YoY) deposit growth of small finance banks (SFBs) has largely outpaced the growth in their advances, even as strong demand for loans and the expectation of a liquidity crunch have left the banking sector scurrying for deposits. For example, AU Small Finance Bank’s deposits rose 49% YoY, and gross advances rose 44% as on September 30.

Ujjivan Small Finance Bank has also shown a similar trend. Its gross advances rose 44% on year, whereas deposits rose 45% on year. Equitas Small Finance Bank’s gross advances and deposits rose 20% YoY. Suryoday Small Finance Bank, which will declare its results on Friday, is expected to show a similar trend. In comparison, most large banks witnessed a significant lag between loans and deposits. This was seen even in public sector banks, which tend to have a larger deposit franchise than their peers.

Also read| Banks may face liquidity crunch as loans outpace deposits

For instance, State Bank of India’s gross advances rose 20% on YoY as on September 30 while its deposits rose a mere 10% on YoY. Similarly, Bank of Baroda’s gross advances rose 19% on YoY as on September 30 while its deposits grew a mere 13.6% on YoY.

Also read| Ujjivan SFB posts highest-ever quarterly profit at Rs 294 cr in September quarter

Even some leading private banks showed a similar trend, with HDFC Bank’s advances growing 23.4% YoY, while deposits lagged at 19% YoY. One of the reasons behind this is that SFBs offer a higher rate of interest on deposits than their larger peers, and that has enabled them to garner deposits at a much faster pace, say analysts.

“Large banks have still been lagging in terms of transmission of the policy rates into the deposit rates. That way, there is some attraction for deposits which are offered by small finance banks,” Anil Gupta, senior vice president, co-group head, financial sector ratings, ICRA, said.

In fact, Suryoday Small Finance hiked the interest rate on FDs for deposits maturing in 7-10 years by 25-52 basis points to 8.01% per annum effective November 2. Among listed banks, the highest deposit rate is offered by RBL Bank at 7.25%. per annum. There is also a greater need among small financiers to grow their fixed deposits so that they can utilise these in order to repay their legacy borrowings.

“Small finance banks also have borrowings as a part of their liability structure. They have to replace their old borrowings with bank deposits. So, they need to grow their deposits at a faster pace than their loan book,” Gupta said.However, these lenders have a higher share of microfinance loans, relatively smaller deposit franchise and regional operations, which put customers at a higher risk of losing their deposits, say analysts.

Going ahead, small financiers are likely to continue to offer deposits at higher rates in a bid to increase their market share on the liability side. They will focus not just on retail deposits but on wholesale deposits as well, say bankers. “If you are hungrier for money, then there are times when you may have to pay a little bit more to generate that liquidity. So, it might be a trade-off from a cost perspective,” PN Vasudevan, MD & CEO, Equitas Small Finance Bank, said in the Q2 earnings call.

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First published on: 11-11-2022 at 07:09 IST