The deposit growth in the country will decelerate to 11.2 per cent YoY in fiscal year 2025, as banks face slower mobilisation of new deposits, highlights a report by B&K Securities.
All Eyes On RBI Repo Rate
As per the report at the end of fiscal year 2024, deposit growth was recorded at 13.8 per cent year-on-year (YoY).
"We anticipate that deposit growth will decelerate to 11.2 per cent YoY in fiscal year 2025" said the report.
The report also noted that the Reserve Bank of India is likely to reduce the repo rates by 25 bps in December this year, highlighted a research report by.
The report also anticipated another rate cut of 50 bps during the fiscal year 2025, as the central bank aims to manage inflation and support economic growth.
The repo rate is the rate at which the RBI lends money to commercial banks, and any reduction in this rate can impact interest rates on loans and deposits across the banking sector.
LDR Stands At 79%
The report mentioned that with the expected cut, interest-rate-sensitive assets and deposits, particularly term deposits (TD) and savings accounts (SA) in new-generation private sector banks (PVBs), may see changes in renewal or repricing based on the banks' Asset-Liability Management (ALM) strategies and reset clauses.
"We anticipate that the RBI will reduce the repo rate by 25 bps in December 2024, with an additional cut of 50 bps expected during fiscal year 2025. Consequently, interest rate-sensitive earning assets and deposits, especially term deposits (TD) and savings accounts (SA) in new-generation PVBs, may be affected by renewal or repricing based on their Asset-Liability Management (ALM) strategies and reset clauses" said the report.
The report also highlighted some key financial ratios related to Scheduled Commercial Banks (SCBs). Currently, the Loan-to-Deposit Ratio (LDR) stands at 79 per cent, while the combined ratio of "Credit + SLR Investment + Cash" to deposits is at 113.8 per cent.
This suggested that banks have sufficient liquidity in their system to manage their credit growth and other investments. However, the report added one notable factor is the impact of the recent withdrawal of Rs 2,000 denomination notes, amounting to Rs 3.6 trillion in fiscal year 2024. This withdrawal, along with changing interest rate expectations, is expected to slow deposit growth.
Another significant development highlighted in the report is the upcoming loan repricing based on External Benchmark Lending Rates (EBLR), which is set to begin in fiscal year 2025 or 2026. |
Another significant development highlighted in the report is the upcoming loan repricing based on External Benchmark Lending Rates (EBLR), which is set to begin in fiscal year 2025 or 2026.
"In the context of SCBs LDR and the ratio of "Credit + SLR Investment + Cash" to deposits, which stand at 79 per cent and 113.8 per cent, respectively, and considering the absence of Rs 2,000 denomination withdrawals (amounting to Rs 3.6 trn) in fiscal year 2024, deposit mobilisation is projected to experience a significant decline from the 13.8 per cent YoY growth observed at the end of fiscal year 2024" the report added.
The report also stated that the loans linked to EBLR will be adjusted within one to two months following changes in the repo rate, Treasury bills (T-Bills), or the Mumbai Interbank Offer Rate (MIBOR). This could lead to fluctuations in banks' credit yields and profit margins as lending rates become more closely tied to external benchmarks.
