MUMBAI: Private sector banks have increased their share in term deposits to 35 per cent in the second quarter (Q2) of 2023-24 (FY24), up from 32 per cent in the fourth quarter (Q4) of 2022-23 (FY23). In contrast, public sector banks (PSBs) lost 200 basis points (bps) of their share in fixed deposits (FDs), declining to 60 per cent from 62 per cent during the same period.
The market share in the first quarter of FY24 stood at 33 per cent for private banks and 61 per cent for PSBs.
According to the latest Reserve Bank of India data, FDs of private sector banks have increased to Rs 39.52 trillion from Rs 33.43 trillion from March 2023 to September 2023. Simultaneously, the term deposits of PSBs have risen to Rs 68.28 trillion from Rs 64 trillion during the same period.
Private sector banks have consistently increased their market share since Q4FY23, driven by aggressive client acquisition and the offer of better services.
“Deposits, in general, have seen an increase along with strong year-on-year growth in term deposits. This increase is attributed to the credit growth that private banks are experiencing. So, credit growth for private banks remains ahead of the public sector. Private banks need deposits to fuel this credit growth and are willing to go the extra mile to acquire them. Even if they have to pay a small premium at times, they are fine with it as long as they get the deposits,” said Karan Gupta, director and head of financial institutions, India Ratings & Research.
Among the maturity period, term deposit mobilisation in the one- to three-year category exhibited healthy performance, with deposits rising to Rs 69.39 trillion in September 2023 from Rs 61.18 trillion in March 2023.
Of the total share, 65 per cent of the deposits are concentrated in this tenure. The increase in interest rates is believed to be one of the reasons leading to a demand among consumers for this maturity period.
The data shows that in the reported quarter, 50 per cent of term deposits continue to be 7-8 per cent, compared to the share of 20 per cent in Q4FY23. Similarly, 28.61 per cent of consumers parked their funds in the range of 6-7 per cent interest rate during Q2FY24.
Around 80 per cent of the total funds are parked in FDs in the range of 6-8 per cent.
Term deposit rates are believed to be inching towards their peak.
Kotak Institutional Equities said in its research note, “Comparison of current term deposit interest rates and the headline rates offered by banks suggests that we are moving closer to peak deposit rates for the system. It is still not complete, and we probably have a couple of quarters before rates have peaked.”
“The growth in deposit rates is likely to continue along with the competitive intensity during the rest of the financial year. The deposits are expected to see 11-12 per cent growth in the remaining financial year,” Gupta added.
Furthermore, the elevated deposit rates are expected to put pressure on the net interest margin (NIM) of the banks.
In the deposits, the share of non-individual deposits has inched up to 52 per cent from 50 per cent.
“A higher share of non-individuals that are non-operational tends to have negative implications in deploying it. We are likely to see NIM pressure for banks overall,” the research note added.
Meanwhile, Gupta said, “Although the NIM will remain under pressure, the pressure is likely to moderate in the second half of the financial year from the first half. Deposit repricing is largely done, and the marginal cost of funds-based lending rate (MCLR) repricing continues. Banks are still announcing a 5-10 bps increase in their MCLR here. Banks still have nearly 50 per cent of the lending on MCLR, and so that will see an increase in the second half of the financial year, reducing the pressure on NIMs.”
Source: Business Standard
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