State-run banks are losing this round of deposits’ growth to their private peers. In fact, that has been the case since 2012, but considering the widening banking customer base, not all was lost for Public Sector Banks (PSBs).
But the situation is now turning grim as PSBs are unwilling to match private counterparts in raising deposit rates. As the wedge between private banks and PSBs on deposit rates widen, the latter’s deposit base is likely to be further dented. Since March, 2012, PSBs lost 13 per cent market share in credit and 8 per cent in deposits, mostly to private banks.
After continuous deceleration since FY12, both credit and deposit growth of PSBs showed some acceleration in the first half of FY19. Yet, the divergence in rates between public and private sector banks remain huge. The credit-deposit (CD) ratio of private banks look stretched, particularly since it is at a record high.
Meanwhile, notwithstanding the widening annual gap between PSBs and private banks in terms of both deposit and credit growth, the differences narrowed modestly in Q2, though there appear to be no signs of convergence. Bank credit growth has surpassed deposit growth, which in turn constrained liquidity in the banking system in recent months. On a year-on-year basis, bank credit growth stood at 14.6 per cent as on January 18, while deposit growth stood at 9.7 per cent.
On an incremental basis (between April 2018 and January 2019), bank credit grew by 8.2 per cent, while deposits grew by a pale 5.9 per cent.
As per data, credit and deposit growth rates picked up during the second quarter of FY19 over the previous quarter and though credit growth accelerated, unfortunately, deposits decelerated in all areas but metros, which generally dominate the scene accounting for over half of all bank deposits and nearly two-thirds of bank credit. Credit growth rates accelerated in most states during the second quarter, but deposit growth decelerated.