Axis Bank reiterates system deposit, credit growth to converge over FY25

Mumbai: Private sector lender Axis Bank on Wednesday reiterated that it expects system credit growth to moderate and converge towards deposit growth, reflecting a system-wide challenge in bridging the gap between demand for loans and people’s willingness to park funds in deposits.

“We expect deposit growth to remain a factor influencing growth in advances in the near term,” Amitabh Chaudhry, chief executive officer (CEO), Axis Bank, told reporters after announcing the June quarter earnings. “We retain our stance of policy rates staying higher for longer and foresee the system credit growth to converge towards deposit growth of around 13% over the fiscal.”

The gap between credit and deposit growth rates recently led the banking regulator to express concerns about structural changes in the people’s savings habits. Reserve Bank of India (RBI) governor Shaktikanta Das said last week that households and consumers who have typically been parking funds with banks are increasingly turning to capital markets and other financial intermediaries. As on 28 June, bank deposits had grown 11.1% year-on-year, lagging credit growth of 17.4%. Banks have been raising deposit rates to lure customers who seem to have found other investment avenues. 

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While Axis Bank’s total deposits rose 13% year-on-year (y-o-y) to ₹10.62 trillion, its loans increased 14% to ₹9.8 trillion as on 30 June. The growth in deposits primarily originated from term deposits which rose 20% y-o-y to ₹6.18 trillion.

The bank’s current account and savings account (Casa) deposits, a key source of low-cost funds, increased 4% to ₹4.44 trillion, of which savings accounts saw a slight decline in outstanding balance and stood at ₹2.94 trillion as on 30 June, as against ₹2.95 trillion from the same period last year. Current account deposits saw a 12% growth to ₹1.49 trillion. The Casa ratio — current and savings accounts as a percentage of overall deposits - shrunk 400 basis points (bps) on a y-o-y basis to 42%. 

“If you take a 12-month view of our deposit franchise, especially the current account franchise, we have continued to build the deposit franchise in terms of its quality. We have improved quality over the last 12 months and improved granularization of deposits,” said Subrat Mohanty, executive director of banking operations and transformation, Axis Bank, adding that some of the constraints on deposit growth are system-wide. 

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Mint reported on 19 July that deposit rate hikes have outpaced increases in lending rates, as deposit growth continues to lag credit growth. The weighted average lending rate on fresh rupee loans rose by 153 bps from 7.86% to 9.39%. In contrast, the weighted average deposit rate on fresh term deposits increased by 226 bps from 4.21% to 6.47%.

The bank believes that system liquidity has improved a little bit and hopes that with the Union budget announced, government spending should return.  Moreover, given the competitive environment, the bank would like to stay competitive on rates.