Banks Grapple with Slowing Deposit Growth and Rising Competition

A recent SBI Securities report reveals challenges for banks due to decreased deposit growth. To meet capital needs, banks increasingly depend on external market borrowings, affecting their Net Interest Margins. Sectoral credit growth varies, with strong UPI performance despite slowing YoY growth in transaction value and volume.

Banks in the country are encountering difficulties as a deceleration in deposit growth forces them to rely heavily on external market borrowings, a recent SBI Securities report indicates.

This growing dependence on market borrowings, coupled with heightened competition to attract deposits, has significantly pressured Net Interest Margins (NIMs), crucial indicators of a bank's profitability.

The report also highlights sectoral credit trends for June 2024. Agricultural credit growth declined to 17.4% from 19.7% in June 2023, suggesting cautious lending due to repayment risks or reduced demand. Conversely, industrial credit saw an 8.1% year-on-year increase.

Additionally, the report notes strong performance in digital payments, with Unified Payment Interface (UPI) transactions reaching 14.4 billion in July 2024, a 45% YoY increase. However, the YoY growth in transaction value and volume has been slowing since March 2024 due to normalization.

(With inputs from agencies.)