Indian Banks Face Challenges with Slow Deposit Growth and Rising Market Borrowings
According to a recent report by SBI Securities, banks in India are facing difficulties due to a slowdown in deposit growth. This has forced them to rely more on external market borrowings to meet their capital needs, putting pressure on their Net Interest Margins (NIMs). NIM represents the difference between the interest income generated by banks and the interest paid out to depositors, and it is a key indicator of a bank’s profitability.
The report also provided insights into sectoral credit deployment for June 2024. Credit growth to agriculture and allied activities has reduced, declining to 17.4% in June 2024 from 19.7% in June 2023. This indicates a cautious approach by banks towards lending in this sector. In contrast, industrial credit witnessed a modest increase, growing by 8.1% year-on-year (YoY).
In the digital payments space, the Unified Payment Interface (UPI) continues to perform strongly. In July 2024, UPI transactions reached 14.4 billion, representing a 45% YoY growth. The value of these transactions exceeded Rs 20.0 trillion, registering a 35% YoY increase. However, the YoY growth in both transaction value and volume has been slowing since March 2024 due to the normalization of the base as UPI has already achieved widespread adoption.
Doubts Revealed
SBI Securities -: SBI Securities is a part of the State Bank of India group. It provides financial services like stock trading and investment advice.
Deposit Growth -: Deposit growth means how much money people are putting into their bank accounts. Slow deposit growth means people are not saving as much money in banks.
Market Borrowings -: Market borrowings are when banks take loans from other places like the stock market or other financial institutions to get money.
Net Interest Margins (NIMs) -: Net Interest Margins (NIMs) is the difference between the interest banks earn from loans and the interest they pay on deposits. If NIMs are low, banks make less profit.
Credit Growth -: Credit growth means how much money banks are lending to people and businesses. If credit growth is low, banks are giving out fewer loans.
Agriculture and Allied Activities -: Agriculture and allied activities include farming and related jobs like fishing and forestry. Decline in credit growth here means fewer loans are given for these activities.
Industrial Credit -: Industrial credit refers to loans given to factories and businesses that make products. A modest increase means there is a small rise in these loans.
UPI Transactions -: UPI stands for Unified Payments Interface. It is a system in India that allows people to transfer money between bank accounts using their mobile phones.
