The Yes Bank crisis, which precipitated large-scale withdrawal of deposits from smaller private sector banks, appears to have benefitted their larger peers, many of which are seeing a rapid rise in deposits.
According to information disclosed to stock exchanges, total deposits at HDFC Bank and Kotak Mahindra Bank grew 7.4% and 11.7% respectively between December and March from the previous quarter, while smaller banks like RBL Bank and IndusInd Bank saw declines of about 8% and 6.6% in the same period.
However, on the current and savings account (CASA) ratio front, along with HDFC Bank and Kotak Mahindra Bank, RBL Bank also witnessed a sequential growth.
CASA ratio is a bank’s current and savings account deposits as a percentage of its total deposits.
Since savings accounts pay substantially less interest than term deposits and current accounts pay no interest at all, these low-cost deposits are always lucrative for lenders.
“Large private sector banks are consolidating their position on the CASA deposit front post the fiasco of Yes Bank & PMC Bank. This is quite evident from the pre-quarterly release from many large private sector banks," said Ashutosh Mishra, head of research at Ashika Stock Broking.
Mishra added that this trend is particularly bad news for the mid and small-sized private banks as they may face issues on the liabilities side; which may negatively impact their growth as well as profitability in this difficult time.
“On the other hand, it may give some comfort to large private banks and allow them to focus on addressing assets or loan side issue arising out of covid-19 outbreak," added Mishra.
In releasing approximate numbers for the March quarter, these private sector banks have pre-empted their final financial numbers. Some senior bankers even held calls with analysts and with the media to dispel any concerns about the lenders’ health and about their assessment of the covid-19 impact. While HDFC Bank’s outgoing managing director Aditya Puri spoke to the media on 23 March, Kotak Mahindra Bank’s group president and group chief financial officer Jaimin Bhatt spoke to analysts on 31 March.
Private sector banks have been consistently paying a higher rate of interest on term deposits than their public peers since August 2017, RBI data showed.
The weighted average term deposit rate for all scheduled commercial banks stood at 6.45% as of February.
According to a note by Kotak Institutional Equities on 6 April, the average term deposit rates are broadly similar to term deposit rates (1-2 years) offered by most banks today, albeit slightly lower than small finance banks (SFBs).
“We have started to see banks, especially private banks, cutting headline deposit rates in recent months. The gap between repo and term deposit rates, which had reached close to peak levels, has declined meaningfully," the note added.