India’s Bank Deposits to Grow Slower in 2025, Says Report
A report by B&K Securities predicts that India’s bank deposit growth will slow to 11.2% in fiscal year 2025, down from 13.8% in 2024. The Reserve Bank of India (RBI) is expected to cut the repo rate by 25 basis points in December 2024 and by another 50 basis points in 2025 to manage inflation and support economic growth.
The repo rate is the rate at which the RBI lends money to commercial banks, and any reduction in this rate can impact interest rates on loans and deposits across the banking sector. The report mentioned that with the expected cut, interest-rate-sensitive assets and deposits, particularly term deposits (TD) and savings accounts (SA) in new-generation private sector banks (PVBs), may see changes in renewal or repricing based on the banks’ Asset-Liability Management (ALM) strategies and reset clauses.
The report also highlighted some key financial ratios related to Scheduled Commercial Banks (SCBs). Currently, the Loan-to-Deposit Ratio (LDR) stands at 79%, while the combined ratio of ‘Credit + SLR Investment + Cash’ to deposits is at 113.8%. This suggests that banks have sufficient liquidity in their system to manage their credit growth and other investments.
However, the report added that the recent withdrawal of Rs 2,000 denomination notes, amounting to Rs 3.6 trillion in fiscal year 2024, along with changing interest rate expectations, is expected to slow deposit growth. Another significant development highlighted in the report is the upcoming loan repricing based on External Benchmark Lending Rates (EBLR), which is set to begin in fiscal year 2025 or 2026.
The report also stated that loans linked to EBLR will be adjusted within one to two months following changes in the repo rate, Treasury bills (T-Bills), or the Mumbai Interbank Offer Rate (MIBOR). This could lead to fluctuations in banks’ credit yields and profit margins as lending rates become more closely tied to external benchmarks.
Doubts Revealed
B&K Securities -: B&K Securities is a company that studies and gives advice about money and investments. They look at how banks and other financial things are doing and make predictions.
fiscal year -: A fiscal year is a 12-month period that companies and governments use for financial planning and reporting. It doesn’t always start in January; for example, India’s fiscal year starts in April and ends in March.
Reserve Bank of India -: The Reserve Bank of India (RBI) is the central bank of India. It controls the money supply and interest rates in the country to keep the economy stable.
repo rate -: The repo rate is the interest rate at which the RBI lends money to commercial banks. When the repo rate is lowered, it becomes cheaper for banks to borrow money, which can help boost the economy.
basis points -: Basis points are a way to describe small changes in interest rates. One basis point is equal to 0.01%. So, 25 basis points mean 0.25%.
inflation -: Inflation is when the prices of goods and services go up over time. It means you need more money to buy the same things.
Rs 2,000 notes -: Rs 2,000 notes are high-value currency notes in India. Recently, the government decided to withdraw these notes from circulation, which means people can’t use them anymore.
loan repricing -: Loan repricing means changing the interest rate on a loan. This can happen when the rates set by the RBI change, affecting how much people have to pay back on their loans.
External Benchmark Lending Rates -: External Benchmark Lending Rates are interest rates that banks use to decide how much interest to charge on loans. These rates are linked to external benchmarks like the repo rate set by the RBI.
