Earnings Review: Three takeaways from banks’ Q2 results
Subscribe to enjoy similar stories. Bank Nifty’s struggle to keep up with broader market gains has left many investors resigned, adopting a fatalistic Que sera, sera (whatever will be, will be) approach to equities. Nowhere is this sentiment more palpable than with HDFC Bank, Bank Nifty’s largest constituent, which has delivered a mere 2% return year-to-date—a figure that has frustrated the shareholders of the country’s largest private lender.
However, as September quarter (Q2) results reveal, the entire banking sector faces headwinds that may continue to challenge the pack in the near term. First, the good news: banks are seeing strong traction in deposit growth. For several quarters, deposit growth lagging behind credit expansion has been a primary concern, with the Reserve Bank of India (RBI) highlighting risks to banks’ liquidity profiles.
The September quarter results, however, indicate some relief. Read this | Deposits outpace loans in relief for private banks Four of the top five private sector banks reported deposit growth outpacing credit growth in Q2. HDFC Bank’s deposits rose 15.1% year-on-year, surpassing loan growth of 7%, while ICICI Bank recorded a 15.7% increase in deposits against a 15% rise in advances.
The exception among the top five was IDBI Bank, where deposits grew 11%—below the industry average—even as loans expanded by 19%. Yet, the increase in deposits brings a downside: lenders are now offering higher interest rates to lure depositors away from the booming equity markets, driving up their cost of funds. Banks have faced rising funding costs both sequentially and year-on-year.
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