Home >Market >Mark-to-market >Deposit tap just dried up for nationalized banks
Sans SBI, nationalized banks have seen two straight quarters of the lowest deposit growth ever. Their deposits grew by a mere 3.8% in the quarter ended June and by 3.1% in the previous quarter. Photo: Mint
Sans SBI, nationalized banks have seen two straight quarters of the lowest deposit growth ever. Their deposits grew by a mere 3.8% in the quarter ended June and by 3.1% in the previous quarter. Photo: Mint

Deposit tap just dried up for nationalized banks

Once the stalwart financiers of the Indian economy, the PSU banks are now being pushed towards the fringe as they shrink their balance sheets to stanch the bleeding of bad loans

Public sector banks are an aggrieved lot. Once the stalwart financiers of the Indian economy, they are now being pushed towards the fringe as they shrink their balance sheets to stanch the bleeding of bad loans.

But this is just one side of the problem. The monster under the bed is the rapid deceleration in deposit growth for these banks. Let us remove the State Bank of India (SBI) group from the equation as it commands public loyalty due to its sheer size. Sans SBI, nationalized banks have seen two straight quarters of the lowest deposit growth ever. Their deposits grew by a mere 3.8% in the quarter ended June and by 3.1% in the previous quarter.

The prospects of any revival in deposit growth are bleak as several factors are stacked against these banks. Firstly, private banks are already eating away the market share on deposits and although nationalized banks still make up 70% of public deposits, a lion’s share within this 70% would be that of the SBI group. Indeed, the deposit growth of private banks has never been better, at 20.3% in the quarter ended June. Chart one makes it clear who wins this round.

Secondly, the 18 new niche banks that will set up their shop over the next several months will put up a tough fight for deposits. India got its third new bank on Monday when Equitas Small Finance Bank opened shop. Equitas is planning to open 400 branches that would focus on liabilities. The other two full service banks—Bandhan Bank and IDFC Bank—are already ramping up their deposit mobilization. The small finance banks may also offer higher deposit rates, especially those that are offshoots of microfinance companies. In an interview with CNBC-TV18, the managing director of Equitas Holdings, P.N. Vasudevan, said he is open to giving higher interest rates on deposits.

To be fair, the new players would in all probability service new customers as they bring individuals into the banking fold under financial inclusion. However, in the short term the new banks would eye low-hanging fruit like bulk deposits of rival banks.

All this comes at a time when households are becoming averse to bank deposits. Chart two shows that households savings that found their way into bank deposits are coming down consistently over the last five years. Therefore, more than credit, deposits will probably push small public sector banks into oblivion. If they are not already there.

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