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The growth in deposits in Indian banks is in single digits and trails the credit growth, states a report by BNP Paribas Securities.

In a research report, BNP Paribas said that the deposits are generally weak and CASA (current account, savings account) weaker.

"With system deposit growth in high single digits y-y, materially trailing credit growth, we expect most deposit growth within our coverage universe to have come from term deposits rather than CASA," BNP Paribas said.

According to the report, the banks with high-CASA took material term deposit rate hikes in the previous quarter -- although trailing less prominent names materially -- and should see greater mobilisation of term deposits in 3QFY23.

"We expect a small quarter-on-quarter (q-q) rise in margins for most banks as loan repricing and asset mix shift more than offset the cost of fund increases," the report said.

BNP Paribas expects the stellar performance on credit costs to continue for the sector as asset quality seems to be sustaining, as per management commentary of most banks.

As to the credit trends, BNP Paribas said in the early part of FY23, growth was led by strength in low-touch, urban, data-rich, white collar retail product segments such as mortgages, personal loans, credit cards and prime corporate loans.

By 2QFY23, a shift was visible as higher-touch segments such as commercial vehicles, small medium enterprises and rural started to report a growth pickup.

"We expect this trend to have gathered more steam in 3QFY23 as banks' confidence in these product segments increased due to encouraging macroeconomic data despite reasonably tight monetary and liquidity conditions," the report notes.