Home >Markets >Mark To Market >Lockdown gets banks a deposit surge but pace may slow

India’s banks may be finding it difficult to lend but their deposit base has been swelling during the lockdown.

Four private sector banks that reported first quarter updates have shown large deposit accretion.

India’s largest private sector lender HDFC Bank reported a sequential rise of 3.7% in its deposits. Bandhan Bank, predominantly a micro lender, reported a deposit growth of 6%. IndusInd Bank reported 6% year-on-year growth in deposits, an uptick from 4% in March quarter. To be sure, these growth numbers are a far cry from the double digit growth the bank reported in previous years.

Even so, during the June quarter most banks have seen their deposits surge. This growth comes even as deposit rates have been axed by most lenders. The weighted average term deposit rate had already dropped by 45 basis points in the first four months of 2020.

That is not stopping deposits from flowing with greater force into banks. But the pace of growth may slow down, analysts believe. “With loan growth having moderated to 6% yoy, pressure on deposit mobilization will ease, likely leading to a drop in deposit growth," analysts at Kotak Institutional Equities wrote in a note.

Moreover, as the outlook on employment and wages are uncertain, withdrawal of savings amid the pandemic could also check deposit growth. A sign of this was already visible in the drop in share of current account and savings account (CASA) in total deposits of some banks. HDFC Bank reported a sequential fall of 2.02 percentage points in its CASA ratio. IndusInd Bank too witnessed a fall. Current account balances have fallen between 1 April and 19 June, according to data from the Reserve Bank of India (RBI).

Analysts at Kotak point out that with rise in deposit rates, deposit growth too picked up pace. It is likely that falling deposit rates would translate to lower growth.

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