Indian Banks to Focus on Growing Deposits and Credit
Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das Weigh In
A recent report by Axis Securities suggests that credit growth in Indian banks will continue to outpace deposit growth, although deposit growth is expected to improve in the coming quarters.
Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have expressed concerns about the slow growth of deposits. They have urged banks to develop innovative products to attract more deposits, especially in rural and semi-urban areas.
The report highlights that banks will focus more on deposit mobilization following a period of disappointing growth. Regulatory suggestions to leverage branch networks and household savings are driving this shift. Despite challenges in attracting Current Account Savings Account (CASA) deposits, a gradual increase in sectoral deposit growth is anticipated.
The Credit-Deposit (C-D) ratio will be a critical indicator for banks, particularly private sector banks. While asset quality concerns in unsecured lending may pose challenges, regulatory changes could impact Net Interest Margins (NIMs). However, banks are expected to maintain steady asset quality metrics.
For the Non-Banking Financial Company (NBFC) sector, the report indicates that after a prolonged contraction, the outlook for NIMs is improving. Vehicle financiers are expected to lead this recovery, while affordable housing financiers may see some NIM compression due to portfolio shifts. An anticipated rate cut by the end of CY24 could further support NIMs across the sector.
Overall, with a renewed focus on deposit mobilization, selective credit growth, and improving NIMs, both the banking and NBFC sectors are well-positioned to navigate the evolving financial landscape.
Doubts Revealed
Finance Minister -: The Finance Minister is a person in the government who is responsible for managing the country’s money and finances. In India, this person is Nirmala Sitharaman.
RBI Governor -: The RBI Governor is the head of the Reserve Bank of India, which is the central bank of the country. The current RBI Governor is Shaktikanta Das.
Axis Securities -: Axis Securities is a company that provides financial services like stock trading and investment advice. They also create reports about the economy and banking.
Credit growth -: Credit growth means the increase in the amount of money that banks lend to people and businesses. It shows how much more people are borrowing.
Deposit growth -: Deposit growth means the increase in the amount of money that people and businesses put into their bank accounts. It shows how much more people are saving.
Credit-Deposit ratio -: The Credit-Deposit ratio is a number that shows how much money a bank has lent out compared to how much money it has in deposits. It helps to understand the bank’s lending practices.
Asset quality -: Asset quality refers to how good or bad the loans and investments of a bank are. If asset quality is stable, it means the bank’s loans and investments are in good shape.
NBFC -: NBFC stands for Non-Banking Financial Company. These are companies that provide financial services like loans and investments but are not banks.
Net Interest Margins -: Net Interest Margins are the difference between the interest a bank earns from loans and the interest it pays on deposits. It shows how much profit the bank makes from its lending activities.
Vehicle financiers -: Vehicle financiers are companies or banks that give loans to people to buy vehicles like cars and bikes. They help people afford vehicles by lending them money.