Private banks poised for long-term victory over PSBs amid raging retail deposit war: Report
Indian Banking sector is structurally in stronger shape to ride the retail credit growth story over the next decade, amid rising consumerism. However, funding such growth via retail deposits at a reasonable cost among rising structural disruptions could emerge as the biggest challenge, said domestic brokerage firm Emkay Global Financial Services in its latest banking analysis report.
The brokerage's analysis over the past 50 years indicates that credit contractions or moderation are typically driven by adverse macroeconomic conditions or issues related to asset quality rather than stemming primarily from a slowdown in deposit growth or temporary liquidity constraints. Also Read: Contrarian view: 4 reasons why Anand Rathi expects mid and smallcaps to outperform in the upcoming year The brokerage believes that banks are willing to procure funds, even at higher costs, if there is adequate demand and lending opportunities that maintain credit quality and return ratios.
This willingness is demonstrated by the recent acceleration in deposits, which saw a year-on-year increase of approximately 13% following a prolonged slowdown since FY14. However, the brokerage raises concerns about the current prolonged period of elevated interest rates and subsequent higher funding costs.
Coupled with the escalating risk associated with unsecured retail loans, this scenario poses challenges to profitable lending. Additionally, recent RBI actions to curb undeterred growth in unsecured loans and NBFC loans could play spoilsport, it added.
In light of these factors, the brokerage anticipates a moderation in credit growth to 12–14% YoY over FY25–27E, down from the current rate of approximately 16.5% YoY (or 21% including eHDFCL). Also Read:
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