The share of low-cost current and saving deposits has largely bottomed out in the 39-40% range in a steady decline from about 44% in 2021-22.
“This is likely to squeeze banks’ net margins going forward and prompt repricing of deposit books. In fact, banks have been impelled to increase mobilisation of funds through certificates of deposits (CDs) in June ahead of the quarter end.” according to an article in RBI Bulletin. Mutual funds are the main mobilisers of funds for investment in CDs, it said.
Rising deposits
Deposits rose at 11.1% y-o-y for the fortnight (reported June 28, 2024), and sequentially witnessed an increase of 1.8%. Without considering the merger, growth came in at 8.7% compared to 11.8% last year.
Meanwhile, in absolute terms, deposits expanded by Rs. 26.0 lakh crore over the last 12 months and reached Rs. 212.9 lakh crore as of June 28, 2024.
Deposit growth, though showing improvement, has continuously lagged credit growth in the past year. It is expected to be prominent in FY25 as banks intensify efforts to strengthen their liability franchise. This focus aims to prevent constraints on credit uptake due to deposit growth. CareEdge estimates deposit growth to range between 13% and 13.5% during FY25.
CD ratio
The CD ratio has been generally around 80% since September 2023. Of late, however, the same has been trending downwards. The CD ratio saw a decline of 63 bps, compared to the previous fortnight, and stood at 79.3% for the fortnight (June 28, 2024). The HDFC merger mainly drives this growth. If we exclude the merger impact, the CD ratio for the current fortnight stood at 77.3% compared to 75.1% on June 28, 2023. Of late, the growth in deposits has generally been higher than the credit growth, indicating a disproportionate focus of the banking system on raising resources.
