Thoroughbred racehorses run down the track after crossing the finish line during a morning race. (Photographer: Luke Sharrett/Bloomberg)

Private Banks Continue To Gain Deposit Share At Cost Of Public Sector Peers

Private lenders continued to attract a larger share of incremental deposits flowing into the banking system in the twelve months to December 2018, shows quarterly data released by the Reserve Bank of India.

Stronger growth in credit disbursal, along with aggressive strategies to garner current account and savings account deposits, is yielding dividends for private lenders, who now hold over a quarter of the banking system’s outstanding deposits.

As of December 2018, the share of private banks in outstanding deposits rose to 26.23 percent compared to 24 percent in December 2017. The share of public sector banks slipped to 65.73 percent of all commercial bank deposits as compared to 68.5 percent in December 2017. Foreign banks, regional rural banks and small finance banks mobilised around 8 percent, or Rs 9.7 lakh crore, of the total deposits in the banking system as of December 2018.

In terms of growth rates, private banks outgrew public sector peers significantly between December 2017 and 2018. Total deposits for government owned banks grew by 4.91 percent year-on-year. Private bank deposits grew 20 percent.

This meant that the proportion of incremental deposits being raised by private banks rose to 58.7 percent in the twelve months till December 2018. Public sector banks raised 41 percent of the fresh deposits coming into the system, shows the RBI data.

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Dropping Share Of Current A/C Deposits

Data from the central banks’ Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, shows that PSBs are losing ground to private banks across all three types of deposits; namely current accounts, savings accounts and term deposits.

However, the steepest loss of market share is in the current account category. Public sector banks could see a drop in share of account deposits because of corporates shifting their cash management towards private banks. Slower credit growth at public sector banks could have also impacted current account balances since corporate loan funds are often held in current accounts.

The share of savings account deposits at public sector banks has also dipped marginally in response to higher rates offered by some private banks.

New-generation private banks with lower CASA are offering higher rates to mobilize savings account deposits and customer base, while old large private banks, such as HDFC Bank Ltd., have become more competitive on retail term deposit front and capture market share rapidly without a sudden jump in savings account deposit cost.
Elara Capital’s Feb. 25 Report

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Bank Credit Growth

Credit growth at private banks was also significantly higher than public sector banks.

Outstanding bank credit from private banks grew 22 percent to Rs 29.5 lakh crore as of December 2018 from Rs 24.1 lakh crore in December 2017. For public sector banks, credit grew by 8.43 percent to Rs 57 lakh crore by December 2018, as against Rs 52.7 lakh crore in December 2017.

While private banks are seeing far stronger credit growth, this could moderate if rates at private banks remain high due to the attempt to draw in more deposits, cautioned Elara Capital. “A sustained rise in interest rates would push banks to lend at higher rates and may lead to credit risk and also lower credit growth rates, as credit absorption at incrementally higher rates could be lower,” the brokerage house said in its report.