Mumbai: Lagging deposit accretion poses the risk of constraining credit growth for banks in FY25, India Ratings and Research said on Thursday.
Maintaining its “neutral” outlook on the banking sector for FY25, the agency said the deposit growth is likely to moderate to 12-13 per cent in FY25 from the 13.8 per cent estimated for ongoing fiscal year.
The loan-to-deposit ratio for the sector is at a five-year high of 81 per cent, which makes deposit growth as a crucial part in banks’ credit book expansions, it said.
The agency said it expects credit growth to come at 20.5 per cent in FY24, including the positive impact of the HDFC twins merger, and added that the same number will come at over 15 per cent in FY25.
The loan book mix for banks is likely to change in FY25 due to the dip in shares of exposures to the retail and non-bank lenders segments, the agency said, adding that a revival in private capex will help increase the share of corporate lending in the overall pie.
“The improving return on assets over FY21-FY24 is likely to reach an inflection point with some pressure on margins and credit costs reaching multi-year lows,” Karan Gupta, head and director of financial institutions at the domestic rating agency, said.
In the December quarter, the deposit growth inches up to 12.5 per cent but was still below the over 16 per cent credit growth, the agency said, adding that the mix of deposits has changed with the increase in policy rates and banks increasing the rates on term deposits.
This has led to a decline in the low-cost current and savings account balances, or CASA ratio, for the system by around 3 percentage points from the March quarter of FY22 to the June quarter of FY24, owing to the movement of funds from CASA to better-yielding products, the agency said.
“With the current interest rate cycle likely to reverse in the latter half of FY25 and depending upon its progress, some of the funds could return to CASA balances, thus improving the system CASA ratio,” it said.
