Public Sector Banks see rise in deposits over loans

Public Sector Banks (PSUs) witness increased deposit beating loans owing to its huge branch network, alliances with third-party service provider and public confidence on PSUs resulted in this outcome.

Strong deposit growth in Private Banks

A positive trend was the increase in the pace of deposit growth amid concerns regarding stretched loan-to-deposit ratios and loan growth consistently outpacing deposit growth. While year-over-year deposit growth was largely in line with credit growth at 14-26%, sequential growth was higher at 4-15% compared with 1-8% in the previous quarter.
Sequential growth in credit for Q4 was 3-11 per cent compared with 2-8 per cent in the previous quarter. Lenders’ loan and deposit growth is typically accelerated in the last quarter of a financial year due to higher fund requirements.
Major NBFCs posted strong credit growth for the quarter, with their assets under management rising by 24% y-o-y and 6% q-o-q. Another NBFC with strong record hold 54% on year and 13% on quarter.
Macquarie Research mentioned “Of the ₹1.7-lakh crore of deposits mobilised, 77 per cent were retail deposits. This, in our view, is an excellent outcome given the current liquidity environment. CASA growth at 8.8 per cent q-o-q is also an exceptionally strong outcome and also added that the bank is expected to have a 15% incremental deposit market share in FY24.
Deposit growth for other banks, such as RBL Bank, Bandhan Bank, and Yes Bank, was accelerated. Small finance banks, too, saw high growth of 24-50%, likely owing to concerned efforts by these banks on retail deposit accretion during the quarter, such as higher interest rates on specific tenure savings accounts and fixed deposits.
On the other hand, growth in deposits for lenders such as South Indian Bank and IndusInd Bank was lower at 11-14%, largely in-line with their loan growth trends. CASA ratios for most banks rose sequentially, but fell on a year-on-year basis along expected lines.

Possible reasons for the deposit hike

Higher interest regime will always generate more competition resulting in growth of deposits in private banks. Eg. When they are offering at 8% for retail term deposits, it will be tempting for the customer to keep a part of her savings into term deposits.
Cost of deposit is 4.54% the last quarter and it is bound to increase, because entire repricing of the deposit will take place at the time of the maturity of the term deposit, because most of the deposit are within the range of one year or two years.