While public sector banks (PSBs) continue to gather deposits at a brisk pace, the rate of growth of deposits was higher for private sector banks in FY23.
The top five PSBs – State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank and Union Bank of India – mobilised a total of Rs 8.43 trillion in deposits in FY23. SBI’s total deposits grew the highest incrementally, at Rs 3.72 trillion. Analysts attribute the rise in deposits to the large branch network of PSU banks, the high comfort level that borrowers have with a sovereign-backed bank, and growing partnerships of PSU banks with third party players, including business correspondents and fintechs.
In comparison, the top five private banks – HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank, and IndusInd Bank – garnered a total of Rs 6.60 trillion of deposits in FY23. In a first, HDFC Bank came close to SBI in terms of incremental deposit accretion, gaining over Rs 3.24 trillion of deposits in the previous fiscal, on account of ongoing merger of Housing Development Finance Corp (HDFC) with the bank.
Overall, aggregate deposit of all scheduled commercial banks grew at about 9.6% year-on-year (YoY) compared to the last year’s growth of 8.9% YoY, SBI chairman Khara said in a recent analyst call.
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The deposit mobilisation gap between PSBs and private lenders was the highest during FY20, when large PSU banks garnered a total of Rs 15.17 trillion of deposits, against Rs 4.78 trillion by private banks. Union Bank alone garnered Rs 4.53 trillion of deposits, higher than even SBI’s Rs 3.30 trillion in that fiscal. The sharp rise in incremental deposits of PSU banks in FY20 was led by customers shifting their money from private banks to PSU banks in view of crises at YES Bank and IL&FS, among others, analysts say.
However, the gap between the two set of lenders decreased after FY20. For instance, while large PSBs reported Rs 6.55 trillion of incremental deposits in FY21, private banks reported a total of Rs 4.87 trillion in incremental deposits. In FY22, PSBs reported incremental deposits of Rs 6.73 trillion while private lenders reported Rs 5.40 trillion of incremental deposits.
CASA ratio falls
While both PSBs and private banks have managed to deliver a near double-digit growth in deposits in FY23, their low-cost current account and savings account (CASA) ratio has moderated due to customers shifting towards term deposits.
While SBI’s total deposits rose 9.2% YoY Rs 44.23 trillion as on March end, its CASA ratio fell to 43.80% from 45.28% a year ago. Meanwhile, term deposits, which accounted for 54.7% of total deposits during Q4FY22, now form 56.2% of the total. In the case of ICICI Bank, total deposits grew 11% YoY to Rs 11.80 trillion as on March 31, while the CASA ratio fell to 43.6% from 45.2% a year ago.
“Of course it’s an industry-level experience, when the higher interest regime is there and there is a competition in the market and every bank is sourcing resources to meet their requirement. 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,” said K Satyanarayna Raju, MD & CEO at Canara Bank, in a post-earnings call.
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While the Reserve Bank of India’s move to withdraw circulation of Rs 2,000 currency notes will bring temporary relief to banks on raising deposit rates, higher credit growth, expanding credit-deposit ratio and competition with peers will likely result in higher cost of deposits in later half of the current fiscal, and shall subsequently impact lenders’ net interest margin (NIM).
“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 year,” said Atul Goel, MD & CEO at PNB. He said PNB’s NIM stood at 3.38% in the last quarter domestically and because the bank is pencilling in a higher deposit cost, it is guiding for lower NIM in FY24, in the range of 2.90- 3%.
Anindya Banerjee, CFO at ICICI Bank, said, “… deposit costs have also started to reflect the higher rates at which deposits are being raised incrementally. So, I think, we would believe that the NIMs are at kind of peak or near-peak levels. And from here, we should see a moderation..”
