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India Ratings and Research in its latest report has said mobilising required deposits without compromising on margins and the heightened provisions as the system shifts to a new model of loan provisioning will be the key challenges for Indian banking in FY24. Maintaining its neutral outlook on the important sector for the economy for the upcoming fiscal year, India Ratings said the key financial metrics are likely to improve further in FY24 on stronger balance sheets, higher credit demand and more stability in interest rates.

It mentioned the banking sector's challenges include mobilising deposits while minimising the impact on margins, and provisions that could emerge in the near-medium term on account of the expected transition to the Expected Credit Loss (ECL) regime for provisions. It estimated the deposit growth to come at a low 9-11 per cent in FY24. Deposit repricing will continue to happen in a 'competitive environment', it said, pointing out that banks have drawn on almost Rs 5 lakh crore of liquidity since March 2022, which has enabled reasonably priced and evenly paced deposit mobilisation.

It said as banks grow their books at higher rates than seen in the preceding five to seven years, some of the improvements in low-cost deposits could reverse especially for public sector banks (PSBs). Further, it stated credit growth, which stood at 18.8 per cent as of December 2022 growth, will continue to race ahead of deposit growth that lagged at 11.8 per cent in the same quarter. It added that this will keep pushing up deposit rates.