IGI Logo

S&P Global Ratings in its latest report has said deposit tightness will remain a system overhang. Its base case is for loan growth to slightly moderate, leading to manageable competition for deposits. Indian banks will have to strike a fine balance between maintaining strong loan growth and paying more for deposits to fund that growth.

It said if the clash for deposits gets fiercer, Indian banks will take a hit, either with slimmer margins or slower growth. It stated credit demand is strong. The economic backdrop is highly conducive to growth. Asset quality is improving, buoyed by a confluence of supportive structural and cyclical factors. All that India's banks are missing is a boom in deposits. As per the report, system-level credit growth to moderate to 14 per cent in 2024-25 (FY25) from about 16 per cent year-on-year growth in the first three quarters of FY24. 

S&P Global Ratings credit analyst Deepali V Seth Chhabria said if credit and deposit growth rates remain steady, a period of deposit competition looms, squeezing bank margins to 2.9 per cent from 3 per cent. Private-sector banks are likely to bear the brunt of the situation, as they are already operating at much higher Loan-to-Deposit Ratio (LDR).  Further. She said adding to the stress on the private-sector banks, the lenders are growing at a much faster pace than public sector banks.