New Delhi [India], December 12 (ANI): India’s banking sector continues to face pressure from weak deposit mobilisation, even as loan growth remains relatively healthy, according to a latest sector report by Kotak Institutional Equities.
The report flags sluggish household deposit accretion and muted growth in low-cost deposits as the key structural challenges for banks in the current cycle.
While deposits have broadly grown in double digits, momentum has failed to keep pace with credit growth.
The report said the household deposits, which account for nearly 60% of total banking system deposits, grew about 10% year-on-year, showing little improvement from previous quarters.
Growth remains tilted towards term deposits rather than savings accounts, highlighting the continued weakness in CASA (current account savings account) balances.
Further, the report noted a convergence in deposit growth between public sector banks and private banks.
Public banks still command close to 60% of total deposits, but have lost around 300 basis points of market share since FY23, largely to private lenders. Private banks, meanwhile, continue to draw a higher share of deposits from metro and urban regions, while public banks remain more reliant on household deposits, it said.
Non-individual deposits including corporate and institutional funds are growing marginally faster than individual deposits. However, these funds tend to be higher-cost and less stable, increasing funding risks for lenders over time.
CASA deposits grew about 8% year-on-year, significantly lagging term deposit growth of nearly 12%. Savings account growth remained particularly sluggish at around 5%, reflecting stress in retail liquidity and limited surplus savings among households.
The report also points to a shift by corporates away from savings accounts towards term deposits.
Another key aspect highlighted by the report was an age-wise shift in the behaviour.
Age-wise data shows stronger deposit mobilisation among customers above 60 years, while growth from working-age groups continues to lag, an indicator of subdued income growth and consumption pressures.
Kotak’s analysis highlights early signs of downward repricing in term deposits. The share of deposits in the 7-8% interest rate bucket declined during the September quarter, suggesting that banks have begun to cut deposit rates gradually.
Most deposits continue to be raised in the 1-3 year maturity bucket, reflecting both depositor preference and banks’ liability management strategies.
Kotak Equities also predicted limitation in the further expansion of banks’ net interest margins (NIMs) citing the weak funding environment.
While banks may benefit from a faster decline in cost of funds relative to loan repricing, intense competition for deposits, especially low-cost retail funds, could offset these gains. It cautioned that sustaining profitability while supporting loan growth will remain a delicate balancing act. (ANI)
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