Banks Continue to Struggle with Slow Deposit Growth in June Quarter

Historical Context: The banking sector has faced numerous challenges over the years, from the global financial crisis of 2008 to the more recent COVID-19 pandemic. These events have significantly impacted banks’ ability to mobilize deposits and maintain growth. The pandemic years (FY20-FY23) saw an unusual trend of steady deposit growth, which now appears to be reversing in the post-pandemic period.

Current Scenario: In the June quarter of FY25, banks are grappling with a slowdown in deposit growth. Provisional data from 13 banks indicate a 1.15% drop in deposits compared to the March quarter of the previous fiscal year.

• Bank of Maharashtra: Total deposits fell by 1% to Rs 2.67 lakh crore in Q1FY25 from Rs 2.70 lakh crore in Q4FY24.
• Yes Bank: Total deposits declined by 0.75% to Rs 2.64 lakh crore from Rs 2.66 lakh crore in the same period.
• Bandhan Bank: Recorded the steepest decline with a 1.5% drop in deposits to Rs 1.33 lakh crore from Rs 1.35 lakh crore.

CASA Deposits: The performance in mobilizing low-cost current account-savings account (CASA) deposits was also lackluster. Many top lenders saw a sequential drop in CASA deposits in Q1FY25.

• HDFC Bank: CASA deposits fell by 5% to Rs 8.63 lakh crore from Rs 9.08 lakh crore.
• Bandhan Bank: Experienced an 11.1% drop in CASA deposits to Rs 44,453 crore from Rs 50,151 crore.
• Yes Bank: CASA deposits decreased by 1.1% to Rs 81,405 crore.
• Bank of Maharashtra: CASA deposits fell by 6.6% to Rs 1.33 lakh crore.

Analysts’ Insights: Analysts note that while the sequential decline in deposits is not alarming, it is noteworthy given the steady growth during the pandemic years. Strengthening the deposit base remains a challenge despite the stabilization of the repo rate.

Saurabh Bhalerao, Associate Director of BFSI at CareEdge, suggests that banks should focus more on CASA deposits as other types of deposits like time and bulk are showing growth. However, garnering low-cost deposits could be a struggle.

Advances Growth: Despite the sluggish deposit growth, advances (loans) continued to grow robustly for most banks.

• Yes Bank: Advances grew by 0.88% to Rs 2.29 lakh crore from Rs 2.27 lakh crore.
• Federal Bank: Advances increased by 5.56% to Rs 2.24 lakh crore from Rs 2.12 lakh crore.
• Bank of Maharashtra: Advances grew by 3% to Rs 2.09 lakh crore from Rs 2.03 lakh crore.
• HDFC Bank: The only bank to report a decline in advances, with a 0.79% drop to Rs 24.87 lakh crore from Rs 25.07 lakh crore.

Summary:

• Banks are experiencing a slowdown in deposit growth in Q1FY25.
• CASA deposits have seen a sequential decline for many top lenders.
• The pandemic years (FY20-FY23) saw steady deposit growth, which is now reversing.
• Analysts suggest focusing on CASA deposits as other types show growth.
• Advances growth remains strong for most banks, except HDFC Bank.

This information is crucial for students preparing for competitive exams as it provides insights into the current banking sector trends, historical context, and expert analysis.