Deposit growth of banks will pick up from coming quarters: Axis Securities

The credit growth in the Indian banks will continue to be more than the deposit growth, a report by the 'Axis Securities' has said while also noting that bank deposit growth will pick up in the coming quarters.

"We anticipate sectoral deposit growth to pick up from the coming quarters...However, we expect credit growth to continue to outpace deposit growth, with banks exercising caution around pursuing aggressive growth in the unsecured segment," the report said.

Finance Minister Nirmala Sitharaman and RBI governor Shaktikanta Das recently have raised concerns about slow deposit growth and asked banks to come up with innovative and new products to raise deposits. Sitharaman had a meeting with heads of PSU banks on Monday and asked them to come out with special drives to garner deposits and focus on efficient customer services, especially in rural and semi-urban areas.

The Axis Securities report mentioned that following a period of disappointing deposit growth, banks are expected to enhance their focus on deposit mobilization. Regulatory suggestions to leverage branch networks and tap into household savings are driving this shift.

Despite intense competition and challenges in attracting Current Account Savings Account (CASA) deposits, the report added that a gradual pick-up in sectoral deposit growth is anticipated in the coming quarters.

The report also added that the movement of the Credit-Deposit (C-D) ratio will be a critical indicator for banks, especially private sector banks. Asset quality concerns, particularly in unsecured lending, may pose challenges while regulatory changes could impact Net Interest Margins (NIMs).

Overall the report anticipates that banks are expected to maintain steady asset quality metrics, with no major signs of stress outside the unsecured loan segment.

"For FY25, PSU Banks under our coverage are likely to report largely stable margins supported by expectations of improving C-D Ratio. Similarly, in FY25 most of the larger Pvt. Banks should see steady to slight NIM compression" said the report.

For the NBFC sector the report highlighted that after a prolonged contraction, the outlook for Net Interest Margins (NIMs) in the NBFC sector is showing signs of improvement.

The report added that the growth momentum of the sector is healthy and the margins are stabilizing gradually. It also stated that the vehicle financiers are expected to lead this recovery, while affordable housing financiers may experience NIM compression due to shifts in portfolio mix. The anticipated rate cut by the end of CY24 could provide further support to NIMs across the sector.

"We could see some light at the end of the 'NIM' tunnel, after nearly over a year-long contraction. While the outlook on NIMs in FY25 has improved, we believe Vehicle financiers (CIFC) under our coverage stand a better chance of seeing margin improvement vs. other lenders" said the report.

As per the report, with a renewed focus on deposit mobilization, selective credit growth, and improving NIMs, both sectors are well-positioned to navigate the evolving financial landscape.