Banks Q4 Update: Deposits Rise As CASA Ratio Shows Mixed Trends

Indian banks' deposits grew in the fourth quarter amid mixed trends in current account and savings account ratio, according to the provisional data released so far by some lenders.

An overview of the Q4 provisional figures shows that the trend was evident across HDFC Bank Ltd., AU Small Finance Bank Ltd., RBL Bank Ltd., Federal Bank Ltd., Yes Bank Ltd., Dhanlaxmi Bank Ltd., CSB Bank Ltd., South Indian Bank Ltd., Ujjivan Small Finance Bank Ltd. and Suryoday Small Finance Bank Ltd.

Of these, Suryoday Small Finance Bank, AU Small Finance Bank, and Yes Bank witnessed the highest deposit growth year-on-year at 50%, 26% and 22.5%, respectively.

For HDFC Bank, total deposits grew 7.5% quarter-on-quarter to Rs 23.8 lakh crore in the quarter ended March 31. This growth was led by wholesale deposits that rose 10.9% sequentially, despite the bank trying to bring down high-cost deposits.

This trend comes amid a race among banks to raise deposits at a reasonable cost. According to an Elara Capital note dated April 3, while deposit growth saw an improving trend, the gap between credit and deposit growth has remained wide.

Even Emkay Global Research, in a report from March 21, said that this deposit war is expected to get more intense due to rising structural risks and high loan-to-deposit ratio issues.

Amid this growth, CASA ratio of banks, however, showed a mixed trend.

For instance, HDFC Bank's CASA ratio improved to 38.2%, as compared with 37.7% quarter-on-quarter. Even RBL Bank Ltd., Yes Bank and Suryoday SFB's ratio improved by 140 basis points, 120 bps and 160 bps, respectively.

But for lenders like Federal Bank, South Indian Bank and CSB Bank, the CASA ratio declined sequentially by 123 bps, 94 bps and 38 bps, respectively.

The fourth quarter overview also showed strong growth in advances by private banks. Suryoday SFB led, with advances rising 41% year-on-year to Rs 8,650 crore, followed by AU Small Finance Bank's advances gaining 25% year-on-year to Rs 73,999 crore.

Vinit Bolinjkar, head of research at Ventura Securities Ltd., said that while banks' performance continues to improve on most parameters, a deterioration in asset quality would be something to watch out for.

"We should look out for NPA trends and cost of funds this time; the latter would rise for many lenders," he said.

According to a Fitch Ratings report dated March 26, banks' rising funding cost is expected to remain an important factor that would drive net interest margin. This is primarily due to a greater competition for deposits.

Fitch also expects NIMs to narrow 10-20 bps over the next two years from the current cyclical peak of 3.6% in nine months of FY24.