Top private banks have started posting higher deposit growth than credit in the quarter ending September 2024, according to provisional Q2FY25 business updates reported by lenders to exchanges. The trend has reversed after a period of at least two years.
The country’s largest private lender HDFC Bank, for instance, reported that its deposits grew at more than twice the pace of credit growth in Q2. Its gross advances were up 7 per cent year-on-year (y-o-y) and 1 per cent quarter-on-quarter at ₹25.19 trillion as of September 30,whereas deposits surged by 15 per cent y-o-y and 5 per cent q-o-q to ₹25 trillion during the same period.
IndusInd Bank showed a similar trend. Its overall deposits increased by 15 per cent y-o-y and 4 per cent q-o-q to ₹4.12 trillion, while net advances grew by 13 per cent y-o-y and 3 per cent q-o-q to ₹3.56 trillion.
YES Bank’s overall advances were up 13 per cent y-o-y at ₹2.36 trillion, while deposits climbed by 18 per cent to ₹2.77 trillion.
CSB Bank also reported its overall advances at ₹26,871 crore, up 20 per cent y-o-y, and overall deposits at ₹31,841 crore, up 25 per cent. Karur Vysya Bank’s overall deposits increased by 15 per cent y-o-y to ₹95,839 crore,while advances grew by 14 per cent y-o-y to ₹80,296 crore.
In a bid to control their credit-deposit (CD) ratio at an optimal level, lenders are either slowing down credit growth or raising interest rates on deposits and launching innovative products. In a recent interaction with businessline, R. Subramaniakumar, MD & CEO of RBL Bank, said the lender’s intent is to ensure that incremental credit growth is being supported by deposit growth.
Around 60-65 per cent of the lender’s deposit base comprises high-value customers who maintain a fair amount of balance with the bank, and the lender has ensured that each customer in this segment is assigned a relationship manager. Last year, the lender expanded the branch sales force by 20 per cent and this year by 16 per cent, to facilitate higher deposit growth. It is also using its business correspondent subsidiary outlets to generate leads for deposits.
According to brokerage Motilal Oswal, systemic credit growth has declined mainly driven by slower deposit growth and an elevated CD ratio. Several banks, especially private lenders, have reduced their credit growth guidance, while public sector banks have largely maintained their guidance. Further, continued moderation in unsecured retail and slower corporate credit off-take will further impact credit growth in the banking system.
“While the gap between deposits and credit growth has narrowed from the peak of 8.8% in Nov’22 to 2.3% as of Sep’24, the high incremental LDR (loan-deposit ratio or CD ratio) and regulatory watch on both LDR and LCR (liquidity coverage ratio) will drive further moderation in loan growth. We thus estimate the CD growth gap to reduce to less than 100 basis points over FY25 while estimating credit growth to slow down to 12.5% over FY25,” it said.