Battle for deposits, coming soon to the branch network
Premium- Banks are ramping up branch networks and sprucing up service quality to attract new customers
- HDFC Bank is looking to double its branch count over the coming 3-4 years
MUMBAI : With the era of easy money drawing to a close, banks are turning their attention back to fixed deposits. There is a difference this time, though -- instead of chasing the same set of customers with higher deposit rates, banks are ramping up their branch networks and sprucing up service quality to attract new customers.
India’s largest private sector bank HDFC Bank has said it plans to open 2,000 branches every year for the next three years to refinance HDFC’s borrowings after their merger, and also to finance incremental growth. However, it has also said that its deposit mobilization strategy will be distribution-driven, and not rates-led.
State Bank of India, India’s largest lender with 22,266 branches, is also looking at fine-tuning its strategy on customer acquisition and sharpening focus on deposits.
“Our franchise is strong. Branches always help in acquisition of deposits. While savings bank (deposits) can be acquired through digital channels, fixed deposits are acquired mainly through branches," said C.S. Setty, managing director, SBI. According to him, banks can compete only to some extent on pricing, and competing only with interest rates will put margins under pressure.
“There will definitely be an increase in deposit rates to take care of the inflationary expectations of people, but not to merely compete for deposits. SBI has not seen any pressure on growth of deposits, and growth rate has been in tune with industry growth rates. Our focus continues to be to improve service quality which, combined with the trust our brand enjoys, will help us improve our strong market share in deposits. A strong network of customer service points through bank mitras is also helping us," Setty said. Bank mitras help bring banking services such as loans and deposits to primarily unbanked areas.
With HDFC Bank looking to double its branch count over the next 3-4 years, rivals are also reworking their strategies.
Last week, Kotak Mahindra Bank unveiled a new strategy for its digital neobank Kotak811 under the leadership of founder Uday Kotak’s son Jay Kotak. This digital product had led to the opening of 12.3 million fully digital savings accounts since its launch in 2017. However, its monthly active users stand at 6.2 million, accounting for just half of its overall customer base. The bank is now focusing on increasing engagement with the 811 user base as it looks to cross-sell more products. Separately, the bank has also announced an internal competition among employees for opening the highest number of accounts.
Axis Bank is also raising its game on digital capabilities by tying up with fintechs to open deposit accounts. The bank, which expects 10% of liabilities inflow through digital channels, is also reviewing its internal strategy to face competition.
MINT PREMIUM See All
“HDFC Bank is going to be a disruptor. We can’t stay quiet as branches are an important lever for liabilities growth, and are therefore looking to revise our branch expansion policy," a top executive at Axis Bank said on condition of anonymity.
However, analysts said banks will still lock horns over deposit rates this year. Some such as ICICI Bank, HDFC Bank, Federal Bank, Kotak Mahindra Bank and Axis Bank, have hiked deposit rates by 25 basis points after the Reserve Bank of India increased repo rate by 40 basis points at an off-cycle meeting in May. With the increase in cash reserve ratio (CRR) taking effect on 21 May, liquidity surplus in the system has come down. According to RBI data, the daily liquidity absorption from the banking system was ₹2.96 trillion on 31 May, down from ₹3.22 trillion on 20 May – a day before the CRR hike came into effect. About a month ago, liquidity absorption from the system was over ₹5 trillion.
“With reducing liquidity surplus in the banking system and strong credit growth, deposit rates will continue to see upward pressure. Competition from the expected increase in small savings rate will also push banks to offer higher deposit rates," said Anil Gupta, vice president, ICRA. Bank deposits in India stood at ₹167 trillion in the fortnight ended 6 May, registering stable growth of 9.7% over the previous year. Meanwhile, in absolute terms, bank deposits have increased by ₹14.8 trillion in the last 12 months. Bank credit continued to see strong growth at 11.9% year-on-year. In absolute terms, credit outstanding crossed ₹120 trillion on 6 May, expanding by ₹12.8 trillion in the last 12 months.