Banks’ credit deposit ratio is seen to be flat for the fiscal year FY24 as deposits are likely to pick up traction going ahead. Experts believe that as the economy recovers, Indian banks witness strong demand for loans, however, they face challenges in balancing deposit flows. LKP Securities expect banks’ credit growth to come to around 15% in FY24, while deposits are likely to post 11% growth amidst raising interest rates.
Ajit Kabi, Banking analyst at LKP Securities said, “As the deposit growth rate is slower than the credit growth rate; we believe the CDR to rise this quarter. CDR is expected to stay flat for FY24 as the deposit growth is likely to go up.”
Kabi explained that the higher CDR obstructs the banks to grow as the banks have to maintain an adequate regulatory LCR level.
“We estimate the credit growth to be around 15% for FY24; around 400bps higher of India’s nominal GDP. Deposit growth is expected to be at 11% as the banks are raising the deposit rates,” Kabi added.
As per RBI’s data, banks’ outstanding deposit growth stood at 9.6% in fiscal year FY23, while outstanding credit growth stood at 15%.
Further, Cyril Charly, Research analyst at Geojit Financial Services said, “As the domestic economy recovers, Indian banks are experiencing strong demand for loans while facing challenges in balancing deposit flows, resulting in the CD ratio increasing from 70.0% in Q2FY22 to pre-COVID levels of 75.9% in Q3FY23.”
While the current ratio does not create significant concerns, Charly added, “further expansion could force banks to raise deposit rates to attract more funds or rely on market borrowings, both of which would impact margins.”
Accordingly, going forward, Geojit’s analyst said, “We expect moderation in credit demand along with a slight acceleration in deposit growth; however, deposit growth is not expected to outpace, leading to a further increase in the CD ratio, albeit at a slower pace.”
In Q4, for the banking and financial services sector, ICICI Direct said, “We expect earnings momentum to continue to remain strong led by 1) continued robust credit offtake, 2) steady elevated margins on the back of yield repricing offsetting the higher cost of deposit and 3) steady slippages and resolutions of few stressed assets leading to stable credit cost. The operational performance is expected to remain positive across lenders.”
The brokerage added, “PSU banks are seen delivering continued strong earning trajectory. Management commentary on segments to drive advance growth, liabilities accretion while margin trajectory amid the rising cost of funds will be keenly watched.”
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