Banking Sector Update : Trend fatigue - Navigating a market stuck in neutral by Kotak Institutional Equities
Trend fatigue: Navigating a market stuck in neutral
Our quarterly deep dive into deposits shows unchanged trends on deposit flows across banks, regions and the nature of deposits. Growth in deposits from non-individuals is marginally ahead of growth in deposits from individuals; growth rates for PSU and private banks are converging. Growth in CASA deposits remains weak. The downward re-pricing of term deposits has begun.
Key takeaways from deposit trends
The key takeaways on deposits: (1) The market share between public and private banks stands at ~60:35 (Exhibit 1). The difference in deposit growth between public and private banks is converging (Exhibit 2). (2) Households dominate deposits at ~60% (Exhibit 3). Household deposits grew 10% yoy, led by term deposits over savings. (3) Public banks have ~70% share of their deposits coming from households, while the same for private banks is 55%. (4) Private banks have ~85% of their deposits coming from metro/urban regions, while for public banks this is 70% (Exhibit 7). (5) There is a marginal shift in government deposits to public banks, while the share in corporate and household remains unchanged (Exhibit 8). (6) Individual deposits are higher for public and non-individual share is higher for private banks (Exhibits 12, 13 and 14).
CASA and term deposits: Ratio continues to drift downward
The key takeaways from CASA and term deposits: (1) CASA deposits grew 8% yoy, while term deposits grew ~13% yoy. (2) Savings deposits are a lot more diversified than current and term deposits (Exhibit 16). Savings growth was weak across markets, while current account deposits were strong in metro regions and term deposit growth was strong across regions. (3) Government deposits have shifted to term deposits from savings deposits (Exhibit 18). (4) The age profile shows better trends for the age profile >70 years (Exhibits 19- 21). (5) Term deposits saw similar growth in non-individuals and individuals (Exhibit 22). (6) Term deposits for private banks are largely from metro/urban regions. (7) Individuals have a preference for Rs0.1-1.5 mn while nonindividuals prefer higher ticket sizes at >10 mn (Exhibits 26-28). (8) 65% of the deposits contracted are in the 1-3-year buckets (Exhibit 29). (9) 1QFY26 saw a decline in the 7-8% interest rate bucket (Exhibits 31-33), with some signs of a slowdown in non-individual deposit movement.
Flat data, flat conclusions: No shift in narrative
The overall trend continues to suggest that there are no new signals warranting a change in our current narrative. Household deposit formation remains stable, with growth rates showing no meaningful deviation. Corporate and personal income trends indicate that deposit growth is unlikely to accelerate in the medium term. Meanwhile, slower loan growth and sustained pressure on net interest margins (NIMs) are driving lenders to cut deposit rates aggressively. Despite this, the stronger balance sheets of public sector banks and a clear growth intent across players suggest that a recovery in NIMs is likely to be gradual at best. We keep our current view unchanged.
Above views are of the author and not of the website kindly read disclaimer
