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06
February 2019
 |
| Bank(The Total Investment & Insurance Solutions) |
With
rising demand bank credit in India is expected to grow 13% to 14% during FY2019
and FY2020, forcing banks, especially private sector lenders to aggressively
mobilise deposits. To meet the increased demand, banks will have to raise about
Rs20 lakh crore as fresh deposits says a research note by CRISIL.
CRISIL
estimates bank credit in India would grow at a pace about 13-14% on average
between fiscals 2019 and 2020, significantly faster compared with the 8% seen
in fiscal 2018, which would force a change in the deposit mobilisation plans of
banks over the medium term. To meet this credit growth, the ratings agency
says, banks will have to raise about Rs25 lakh crore over the two fiscals.
While Rs5-Rs6 lakh crore is expected to become available through the release of
statutory liquidity ratio (SLR) funds, about Rs20 lakh crore would need to be
raised through fresh deposits.
Rama
Patel, director, CRISIL Ratings says, “Over the first nine months of this
fiscal, banks have already raised deposit rates by an average of 40-60 basis
points We expect banks to sharpen focus on deposit mobilisation over the medium
term through attractive rate offerings across tenors in both bulk and retail
segments. That, in turn, could further increase the cost of funds of banks,
given that deposits account for the bulk of their funding.”
Traditionally,
banks have utilised their excess SLR in the initial period of credit revival.
"They would do that this time around as well. That said bulk of the credit
demand would be met by deposit growth and to a minor extent by other resource
raising options like infrastructure bonds. That would be well above the average
annual deposit mobilisation of about Rs7 lakh crore over the past few years. It
would also put upward pressure on the interest rates bank offer on
deposits," the ratings agency says.
CRISIL
says it expects banks to maintain on average 4% surplus SLR when credit growth
picks up, compared with around 8% today. This, it says, when juxtaposed with
the Reserve Bank of India (RBI)’s plan to reduce the SLR limit to 18% by March
2020, would translate to a release of Rs5-Rs6 lakh crore from the SLR kitty to
meet credit demand.
"Consequently,
the asking rate of annual deposit growth would be a significant 400 basis
points higher at around 10% compared with about 6% growth in fiscal 2018. To be
sure, this is way lower than the about 25% peak seen in fiscal 2007,"
CRISIL says.
According
to the ratings agency, deposit growth has been declining over the past decade,
and particularly in the past three years when it saw a significant drop as
interest rates offered on fixed deposits dipped below the returns on other
financial investment avenues. That diverted the flow of household financial
savings away from banks.
“Lower
deposit growth has meant a steady rise in the credit to deposit ratio (C/D
Ratio) on a stock basis, which is expected to touch 78% by the end of fiscal
2019, compared with 73% at the end of fiscal 2017 (see Chart 1). Banks will
need to raise at least Rs19-Rs20 lakh crore of fresh deposits until March 2020
to keep the credit-deposit ratio near 80%, which in itself would be highest in
a decade,” says Krishnan Sitaraman, Senior Director, CRISIL Ratings.
According
to the ratings agency, private banks with strong balance sheets and robust
credit growth are expected to lead the race for deposits and will account for
about 55-60% of the incremental deposit mobilisation. These would be followed
by public sector banks outside the RBI's prompt corrective action framework
with around 30-35%.
"Private
banks have already gained 7% market share in deposits over the past five years
to touch about 30% (see Chart 2 above) and are well poised to gain further
backed by superior technology, service levels and ability to acquire customers.
Meanwhile, increasing volatility in the equity market, moderating flows into
other investment avenues, and hike in bank deposit rates in recent months could
bring some household financial savings back into bank deposits," CRISIL
concludes.The Total Investment & Insurance
Solutions
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