A customer counts Indian one-hundred rupee banknotes before depositing them at a branch of the HDFC Bank Ltd. in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Banks Need Rs 25 Lakh Crore In Deposits Over Next Two Years To Meet Credit Demand

Deposit growth has been on the decline as a larger proportion of household financial savings move away from banks and towards other financial instruments. This slowing growth, unless reversed, could hurt banks as they try and meet the increased demand for credit.

According to a report issued by Crisil Ratings, banks will need to raise around Rs 25 lakh crore over the next two financial years. This is substantially higher than the average annual deposit mobilisation of Rs 7 lakh crore over the past two years.

Deposit growth in the April to January period of FY19 stood at 4.9 percent which is higher than the growth of 1.6 percent during the same period of FY18, data from the Reserve Bank of India shows. But this is not enough to meet the growing demand for credit. Bank credit growth has rebounded this financial year, growing at 8.2 percent between April and January 2018 as compared to 3.8 percent in the same period of the previous financial year, according to RBI data.

“Lower deposit growth has meant a steady rise in the credit to deposit ratio on a stock basis, which is expected to touch 78 percent by the end of FY19, compared with 73 percent at the end of FY17,” said Krishnan Sitaraman, Senior Director, Crisil Ratings.

Sitaraman added that fresh deposits of “at least Rs 19-20 lakh crore” will need to mobilised by the banks to keep the credit-deposit ratio near 80 per cent. Crisil estimates that bank credit will grow at 13-14 percent on average between FY19 and FY20, faster than the 8 percent growth in FY18.

Private banks will lead the race in mobilising fresh deposits over the medium term and “will account for 55-60 percent of the incremental deposit mobilization,” said Crisil. Over the past five years the private banks have gained 7 percent market share in deposits to touch 30 percent by the end of FY18.

While eight public sector banks remain under the RBI’s prompt corrective action (PCA), the other public banks will account for 30-35 percent of the incremental deposit mobilisation.

Over the first nine months of this fiscal, banks have already raised deposit rates by an average of 40-60 basis points. We expect banks to sharpen focus on deposit mobilization over the medium term through attractive rate offerings across tenors in both bulk and retail segments.
Rama Patel, Director, CRISIL Ratings