Indian banks may increase their deposits by 15-20 basis points (bps) in the current financial year due to a high credit-deposit (CD) ratio which the lenders would like to bring down, experts at ratings agency ICRA have said.
“The deposit rates have nearly peaked but in certain buckets, banks may look at increasing deposit rates by 15-20 bps,” Karthik Srinivasan, senior president and group head, financial sector, ICRA Ratings, said at a webinar on April 10.
One basis points is one-hundredth of a percentage point.
The credit-deposit (CD) ratio of banks has been at around 80 percent, reaching a decadal high, a March report by CareEdge showed.
The ratio shows how much of the money banks have raised as deposits has been lent out. A high CD ratio indicates liquidity and credit risks for banks.
The challenge on the CD ratio is expected to continue, Anil Gupta, vice president, financial sector, ICRA, said. “Spreads are good in terms of credit and there is some headroom for deposit rates to go up,” Gupta said.
Also read: Banks struggle to attract deposits as customers chase high return equity-linked products
“The CD ratio has been generally hovering around 80 percent since September 2023 and saw an uptick of 38 bps compared to the previous fortnight and stood at 80.3 percent for the fortnight (March 22, 2024), reaching a decade high,” the CareEdge report had said.
Rate hike
Banks have come up with special deposit products and schemes offering higher rates of returns for certain tenures to lure customers.
Major banks have announced revisions in their fixed deposit (FD) interest rates.
Axis Bank, Punjab National Bank (PNB), HDFC Bank, and IndusInd Bank all adjusted their FD rates in February.
Also read: Banks report robust deposit growth compared to slow credit growth in Q4
Jaimin Bhatt, Chief Financial Officer (CFO), of Kotak Mahindra Bank, also acknowledged the pressure to raise deposits.
“Yes, there is a challenge in deposits and to that extent, yes, we are taking all kinds of steps,” Bhatt said during the bank’s third-quarter earnings call.
Experts at ICRA said credit growth of banks is likely to moderate in FY25. “The deposit growth has been lower than credit growth in FY24. In FY25, credit growth of banks is likely to moderate,” ICRA said.
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