Deposit growth improves at private banks in Q4, but at higher costs

13811
April 29, 2024

Deposit growth improves at private banks in Q4, but at higher costs

ET Intelligence Group: The deposit growth of banks has resumed after falling behind the growth in advances over the previous few quarters, showed an analysis of the March 2024 quarter results of top private sector banks.While these lenders were able to increase deposits at a faster clip during the quarter, the growth was accompanied by higher interest outgo, thereby contracting net interest margins (NIMs) year-on-year. The sample includes HDFC Bank, ICICI Bank, Axis Bank, IndusInd Bank and Yes Bank. Kotak Mahindra Bank is expected to declare quarterly numbers on May 4. To be sure, banks have been raising deposit rates to attract more funds to ensure future credit growth.The interest income of these banks at the aggregate level increased by 43.7% year-on-year while the interest expenses rose at a faster rate of 69.8%. Even after excluding HDFC Bank from the sample due to its merger with HDFC, which skewed its numbers, the interest income growth at 33.5% for the remaining sample lagged the increase of 52.3% in interest outgo. As a result, the net interest income (NII) for the sample sans HDFC Bank grew at a slower rate of 16.5% in the March quarter compared with the 25.2% growth in the year-ago quarter.109675423This has also compressed the NIMs of banks. For ICICI Bank, Axis Bank, and Yes Bank, the NIM contracted by 20-50 basis points year-on-year while IndusInd Bank reported a modest 2 basis point fall. One basis point equals 0.01 percentage point.On a sequential basis, HDFC Bank, ICICI Bank, and Axis Bank reported a faster growth in deposits for the March quarter compared with the credit growth while IndusInd Bank and Yes Bank showed marginally lower growth in deposits than advances."Deposit growth although improving has lagged credit growth for FY24 and consequently is anticipated to play a leading role in FY25 as banks take further efforts to shore up their liability franchise and ensure that lagging deposit growth does not constrain the credit offtake," noted CareEdge Ratings in its latest report on credit-deposit trends.