ICICI Bank, HDFC Bank, SBI Better Placed To Face Deposit Crunch, Says Nuvama

Indian banks are poised to remain vulnerable to margin pressure, amid the deposit shortage and decreasing deposit accounts, according to Nuvama Institutional Equities. However, ICICI Bank Ltd., State Bank of India and HDFC Bank Ltd. are "better placed" to face the shortage of deposits, it said.

These banks will continue to gain incremental market share without rate competition, Nuvama said in a note on Dec. 13. While loan and deposit growth appear to have converged, "deposit deficit remains a problem for the industry".

Demand deposits continue to stay under pressure with incremental demand deposits being negative at Rs 15,300 crore, suggesting further pressure on Current Account Savings Account ratio.

The overall loan growth, too, has slowed, analysts at the brokerage firm said in the note. The "big gap" between deposit and loan growth started shrinking in June 2024 with deposit and loan growth now converging, Nuvama said.

The slowdown in loan growth has been driven by the tightening of risk weights on unsecured loans and NBFC credit, low wage growth, FPI and FDI outflows along with low government spending, it said.

Rate cuts are unlikely to have an immediate impact to fix loan growth issue, Nuvama said. "It shall take nine to 12 months for retail demand to revive after rate cuts."

State Bank of India, HDFC Bank Ltd., ICICI Bank Ltd., Federal Bank Ltd. and Shriram Finance Ltd. are the top picks for the brokerage.

Last month, SBI cut its deposit growth guidance for the current financial year to 10–11% from its previous guidance of 12–13%. The state-owned bank expects credit growth to be 14–16% in the current fiscal. Chairman CS Setty wants the state owned lender's deposits to grow in double digits in the fiscal and said deposit rates seemed to have peaked.