A six-year high in bank deposit growth and a shrinking gap with lending growth: Jefferies

 A six-year high in bank deposit growth and a shrinking gap with lending growth: Jefferies

According to Jefferies, there may be a big shift in the banking system's deposit and credit growth disparity despite the Reserve Bank of India's (RBI) decision to reduce inflation.

The benchmark Nifty has increased by 7% during the last month, whereas the Bank Nifty index has surged by 8%.

According to a recent note from Jefferies analysts, bank deposit growth increased by 13% year over year (YoY), the highest level in six years, and the difference with loan growth shrank. The Reserve Bank of India's (RBI) inflation tolerance may alter significantly, although the gap is still negative.

One of the encouraging developments of the last year has been the increase in deposit growth, which has improved by 300 basis points (bps) to 13% annually. According to Jefferies, this is the outcome of stronger GDP growth and a move away from cash savings and into gold and land.

"As a result, the difference between the growth of bank credit and deposits has decreased by half, from 700 bps to 300 bps this year. However, the disparity remains negative, making it difficult for banks to get capital for expansion," the brokerage said. "Will remain a challenge." strong points.

Furthermore, Jefferies said that his recent conversations with banks revealed a lack of clarity about the easing of liquidity. As a result, banks' business strategies continue to emphasize the mobilization of customer deposits in branches, higher rates, and somewhat slower lending growth.

Analysts predict that $20 billion in foreign liquidity entering G-Secs might help mitigate some of the liquidity strains caused by the combination of aggressive foreign bank investment in G-Secs in India and fresh money supply. whose investment book is expanding by 50% every year.

Higher rates are being offered by banks, although bigger banks are giving lower rates, and in some situations, fixed rates are less than the rates on savings deposits.

For instance, bigger banks give 7–7.2 percent interest on savings accounts, whereas many small private banks offer 7–7.5 percent.

Because of this, economists predict that major banks might see a significant drop in the CASA ratio given the 350 bps difference between savings and fixed deposit rates.

Margin concerns from here might also include higher fixed deposit costs and weaker NIMs due to a drop in CASA. He does anticipate a gradual withdrawal, however, and banks may be able to somewhat mitigate the effects by reducing credit prices and slowing the development of operational expenditures.

The benchmark Nifty has increased by 7% during the last month, whereas the Bank Nifty index has surged by 8%.