Top (AAA) rated banks have witnessed an increase in their deposit accretion rate, both on a quarter-on-quarter and year-on-year basis in the fourth quarter (January-March) of FY20, whereas new-age private banks, regional banks and small finance banks have mostly slowed down, according to India Ratings (Ind-Ra).
The credit rating agency said this has created a divide in banking segment deposit rates.
While deposit accretion has been strong, a shift in the profile of the banks accruing them has been noticed with depositors focussing on quality and safety to differentiate between banks, it added.
The agency expects this trend to continue in the near term with new-age private banks, regional banks and Small Finance Banks mostly slowing down, as safety has come to the forefront after the events that played out with PMC Bank and thereafter at Yes Bank
During the January to May 2020 period, aggregate deposits in the banking system grew by ₹7.05 lakh crore compared to ₹4.65 lakh crore in the same period last year.
Ind-Ra said credit growth, however, remained muted, as expected. The banking system’s credit grew by only ₹2.2 lakh crore during the January-May 2020 period as against ₹2.84 lakh crore in the January-May 2019 period.
The agency said the sudden surge in bank deposits is due to a rise in overall borrowings of both the central and State governments, rather than increased savings.
Deposit rates
Though almost all banks have reduced their deposits rates, the slide is much sharper in the public sector and large private sector banks, creating a wider spread between the top banks and others, Soumyajit Niyogi, Associate Director, said in a report.
He added that the deposit rate differential is also reflected in the large spread in the Marginal Cost of funds based Lending Rates (MCLRs) of these banks. This, in turn, should help in acquiring better credits while protecting their margins once credit demand picks up.
“Lesser flexibility in terms of attracting deposits at lower rates implies that small and low-rated banks will either face the challenge of sacrificing margins to compete with large banks or have to on-board low-rated customers, which will increase their risk profile,” cautioned Niyogi.
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