Indian Banks' Credit Growth to Outpace Deposits Despite Sectoral Pick-Up: Axis Securities Report

A report by Axis Securities notes that while Indian bank deposit growth is expected to improve, credit growth will still outpace it. Finance Minister Nirmala Sitharaman and RBI governor Shaktikanta Das have urged banks to create innovative deposit products. The NBFC sector shows signs of improving Net Interest Margins.

Credit growth in Indian banks is set to continue outpacing deposit growth, according to a report by Axis Securities, which also predicts a rise in bank deposit growth in the coming quarters. The report underscores the necessity for banks to exercise caution, particularly in the unsecured lending segment.

Finance Minister Nirmala Sitharaman and RBI Governor Shaktikanta Das have expressed concerns over sluggish deposit growth, urging banks to develop innovative products to attract deposits. In a recent meeting with heads of Public Sector Undertaking (PSU) banks, Sitharaman emphasized the need for special drives to enhance deposit mobilization, especially in rural and semi-urban areas.

Amidst intense competition for Current Account Savings Account (CASA) deposits, the Axis Securities report foresees gradual sectoral deposit growth while highlighting the importance of the Credit-Deposit (C-D) ratio as a key performance indicator, particularly for private banks. Despite potential challenges in unsecured lending and regulatory impacts on Net Interest Margins (NIMs), asset quality metrics are expected to remain stable.

The report also offers an optimistic outlook for the Non-Banking Financial Company (NBFC) sector, noting signs of improving NIMs after a period of contraction. Vehicle financiers are projected to lead this recovery, although affordable housing financiers might experience NIM compression due to portfolio shifts. An expected rate cut by the end of CY24 could further support NIMs sector-wide.

Overall, the report anticipates steady asset quality metrics and selective credit growth, suggesting both banks and NBFCs are well-positioned to navigate the evolving financial landscape.

(With inputs from agencies.)