In a notable shift, many private sector banks are experiencing a reversal of trends with their deposit growth surpassing the growth in advances. According to provisional data released by top private sector banks, five out of seven lenders have reported a scenario where deposit growth has outpaced credit growth sequentially in Q4FY24, with only AU Small Finance Bank (SFB) and South Indian Bank showing a different trend.
HDFC Bank, the country’s largest private sector lender, recently announced that its overall deposits stood at Rs 23.80 trillion as of March 31, 2024, marking a significant 26% year-on-year (YoY) increase and a 7.5% quarter-on-quarter (QoQ) rise. The bank also saw an improvement in its low-cost current account and savings account (CASA) ratio, which increased from 37.7% in Q3FY24 to 38.2% in Q4FY24. Meanwhile, gross advances rose by 55% YoY and 2% sequentially to Rs 25.08 trillion as of March 31.
Following this positive trend, HDFC Bank’s shares surged by 3.1% to close at Rs 1,527.90 apiece on the BSE, as concerns regarding the bank’s deposit mobilization capabilities subsided. The bank clarified that the figures for the period ending March 31, 2024, include the operations of erstwhile HDFC Limited, which amalgamated with and into HDFC Bank on July 01, 2023, making year-on-year comparisons not directly comparable.
Analysts at Jefferies noted three key positive takeaways from HDFC Bank’s provisional Q4FY24 numbers. These include robust deposit mobilization, with total retail deposit mobilization reaching Rs 1.3 trillion during the quarter, compared to Rs 50,000 crore in the previous quarter and Rs 1.1 trillion in the corresponding period a year ago. Additionally, a pullback in loan growth, particularly in corporate loans, has contributed to lowering the credit-deposit ratio (LDR) by over 600 basis points (bps) QoQ to 105%.
The positive trend of deposit growth outpacing credit growth was not limited to HDFC Bank. Other private sector lenders also reported similar trends for Q4FY24. For instance, YES Bank witnessed a 22.5% YoY increase and a 10% QoQ increase in overall deposits, reaching Rs 2.66 trillion. Meanwhile, Federal Bank reported its overall deposits at Rs 2.52 trillion, up 18% YoY and 5% QoQ, with overall advances rising by 20% YoY and 5% QoQ to Rs 2.12 trillion during the same period. RBL Bank and Bandhan Bank also reported a faster pace of deposit growth compared to credit growth in Q4 on a sequential basis.
According to a report by Emkay Global Financial Services, the trend is expected to continue, with banks’ deposits projected to grow by 13.5% YoY in FY25, up from an estimated 12.6% YoY growth in FY24. However, credit growth is anticipated to sharply moderate to 11.5% YoY in FY25, down from 21% in FY24.
The overall sentiment indicates a shift in the banking sector dynamics towards a more deposit-driven growth pattern, which could have implications for lending practices and profitability in the upcoming quarters. Investors and analysts are keenly observing the margin direction as HDFC Bank is set to announce its Q4FY24 results on April 20, 2024, to gain further insights into this evolving trend.
