Private banks post strong credit, deposit growth in Q4

HDFC Bank, IndusInd Bank, Yes Bank, Federal Bank and Bandhan Bank reported provisional business numbers ahead of financial results for the three months ended 31 March.

IndusInd Bank posted the highest growth in loans at 21.3% from a year ago, followed by Federal Bank at 20.2%, and HDFC Bank at 16.9%.

Despite owning the largest deposit base among private lenders, HDFC Bank posted a 20.8% deposit growth in the January to March period, while Federal Bank’s deposits grew 17.4%, and IndusInd Bank at 14.6%.

A majority of these lenders fared better than the industry. Reserve Bank of India (RBI) data on bank loans and deposits available up to 10 March showed that while non-food credit grew 16% from a year ago, deposits increased 10.3%. “IndusInd Bank’s loan growth at 21% yoy for FY23 was 500 bps ahead of system loan growth of 16% as of 10 March. We also like the bank’s focus on retail deposits which has been steadily going up," said Suresh Ganapathy, head, financials research and associate director, Macquarie Capital.

The share of top 20 depositors of IndusInd Bank has been declining and stood at 15% in April-December 2022, from 23% in FY20 when Sumant Kathpalia took charge as the chief executive officer, Ganapathy said in a note on 4 April.

Banks’ deposit growth has been lagging credit growth for the past several months with customers looking out for better returns on their investments. Subsequently, lenders started raising deposit rates and introduced special offers for customers to park their funds, leading to a 100-basis point increase in deposit growth in September-March.

HDFC Bank’s deposit growth could have ended FY23 with an incremental market share of 20%, Ganapathy said. Incremental deposits of ₹3.2 trillion raised in FY23 was 45% higher than the ₹2.2 trillion in FY22, and was a “commendable achievement", he added.

Industry experts said credit growth will remain buoyant in FY23, before moderating in fiscal 2024.

Analysts at Motilal Oswal Financial Services expect credit growth of 15.7% in FY23, and 13.3% in FY24. In a note to clients on 4 April, Motilal analysts said deposit rates have risen sharply over the past few months, but the gap between credit and deposit growth still remains high. “While we expect a stable-positive bias in margins in Q4 FY23, a rise in the cost of deposits and further rate hikes would influence the margin trajectory in FY24. Margins are likely to see some pressure in FY24."

Meanwhile, stagnating interest rates on savings accounts despite rising term deposit rates led to a decline in current and savings account (Casa) ratio—low-cost funds as a percentage of total deposits—of private banks.

Typically, lenders seek a strong pipeline of low-cost Casa funds considering that savings account interest rates are lower than fixed deposits, and current accounts do not pay any interest. For instance, HDFC’s Casa ratio fell by 420 basis points in a year and was at 44% as of 31 March. At IndusInd Bank, the ratio was at 40.1% in FY23, down from 42.8% in the previous year.